BUILDING FROM
STRENGTH
2020 Annual Report
The a2 Milk Company Limited
ARBN: 158 331 965
GROWING
RESILIENCE
STRENGTHENING
IMPACT
During this financial year we have continued to strengthen
our brand and business foundations to enable us to build
sustainable growth for future years.
Moving forward we have a heightened focus on living our
purpose, to enrich lives through the nutritional wonders
of nature, delivering to our financial ambitions, and to
further improving the meaningful impact we can make on
the broader communities and world in which we operate.
HIGHLIGHTS
GROUP PERFORMANCE
$1.73bn
Revenue 32.8%
52.39c
Earnings per share
33.5%
$549.7m
EBITDA
32.9%
$385.8m
NPAT
34.1%
$427.4m
Operating cash flow
$854.2m
Cash on hand
PRODUCT SEGMENT REVENUE
$223.4m
Liquid milk
27.7%
$1.42bn
Infant nutrition
33.8%
$85.2m
Other nutrition
29.6%
REGIONAL HIGHLIGHTS
Asia Pacific
101.2%
China label
infant nutrition
40.3%
English label1
infant nutrition
USA
91.2%
Milk sales growth
19.1k
China store distribution
14.1%
Australian milk sales
20.3k
Store distribution
1
Includes Hong Kong and Korean label
2 The a2 Milk Company
Building from strength 3
CONTENTS
FY20 highlights
Our Chair
CEO’s year in review
Building a sustainable future
Corporate governance
Our directors
Our executive committee
Governance
Remuneration
Financial statements
Other information
02
08
10
22
38
40
42
44
49
54
102
4 The a2 Milk Company
4 The a2 Milk Company
Building from strength 5
OUR 20-YEAR
JOURNEY 1
Early in our 20-year history we had many false starts.
However, we persevered to become the company we
are today. Below are some of the highlights of the
critical milestones that have marked our journey and are
paving the way to continuing to realise our ambitions.
Company founded in
New Zealand by
Dr Corrie McLachlan
and Howard
Paterson, armed with
unique intellectual
property and a
growing belief of the
effects different milk
proteins have on
human health
2000
1
Financial year
ending
Listed on NZX
Alternative
Market (NZAX)
2004
Company records
a Group profit of
NZ$2.1m
2011
2003
a2 Milk™ begins
selling in New
Zealand and
Australia via
licensing
arrangements
Cliff Cook invests in
the company and
later becomes
Chairman of the
Board 2004 to 2015
2008
Major change in
strategic direction,
shifting from
licensing model
to branded
operational model
a2 Milk™
relaunched in
Australia with more
focused brand and
operational efforts
2012
Transferred from NZAX
to NZX Main Board
Formed a manufacturing
agreement with Synlait
Milk Limited (‘Synlait’)
Formed a strategic
partnership with China
State Farm Holding
Shanghai Company
(‘China State Farm’)
Commissioned a state-of-
the-art milk processing
facility in Sydney,
Australia
a2 Platinum® infant
nutrition brand is
launched in New
Zealand, Australia
and China
2013
Listed on ASX
a2 Milk™ is
launched in USA
2015
Group revenue
exceeds $0.5 billion
for the first time
Acquired 8.2%
equity of Synlait
2017
Achieved broad
national distribution
in the US liquid milk
market
Included in
S&P/ASX 100
Renewed agreement
with Synlait
2019
2016
Infant nutrition
step-changes the
business and
now accounts for
60% of revenue
2014
The company name
changes from A2
Corporation to The
a2 Milk Company
with a new brand
identity
First human digestion
clinical research is
published supporting
a digestive difference
between A1 and
A2 beta casein
protein types
2018
Renewed agreement
with China State Farm
Comprehensive
strategic relationship
announced with
Fonterra Co-operative
Group
Increased Synlait
shareholding to 17.4%
Australian fresh milk
market share exceeds
10%
a2 Platinum® becomes
Australia’s No. 1
infant nutrition brand
2020
Increased Synlait
shareholding
to 19.8%
Included in
S&P/ASX 50
Step-changed
our investment
behind our
brand, our
people and
increased
capabilities,
to further
strengthen our
foundations for
future growth
6 The a2 Milk Company
Building from strength 7
OUR
CHAIR
It is with great pleasure that I
present to you, yet another
outstanding year for
The a2 Milk Company. This
year, as we reflect over our
20-year history, I am reminded
of what a remarkable journey
it has been.
As a business with a proud New Zealand heritage we are also
extremely pleased of how we have developed our Trans-
Tasman markets, the tremendous growth we are achieving in
China, and the additional opportunities we are developing in
North America and other parts of Asia.
2020 was a year in which our business faced many changes
and challenges. Despite this, we didn’t deviate from delivering
on our strategy. The resilience we have created within our
company over many years has provided us a solid foundation
on which to continue building from strength. We continue to
invest in those aspects of the business that will create more
growth opportunities in the future.
Focus areas for the year included:
• A heavy uplift in marketing investment behind our brand,
especially in China
• Our continued expansion into more physical stores in
China, and driving growth across all infant formula
channels
• Expanding our distribution and presence in the USA
• Delivering strong performances in our key growth markets
– China and the USA
• The continued investment in building our internal teams
and capabilities.
Against the backdrop of the uncertainty and complexities
caused by COVID-19, we recognise that we are fortunate
to be supplying essential products that are well positioned
and appealing to consumers. In addition, we have enjoyed
good support from our manufacturing and logistics partners,
our farmers, our in-market distribution partners and most
importantly from our loyal and growing consumer base.
It is the combination of all these that has allowed us to
deliver growth across all our key markets and across all our
product categories.
As well as delivering a record performance this year, we also
deepened our understanding and commitment to building a
more sustainable business. Focus areas included climate impact
assessment, ethical supply chain and responsible sourcing,
animal welfare improvements, farm environmental plans,
assisting our communities to thrive and various initiatives and
investments in our people.
Over the past several years, we have experienced rapid growth
and, consequently, developed a robust balance sheet with
significant cash reserves. This has created a wide range of
options for us to fund our future growth. Our strong financial
standing has allowed us to continue to invest heavily behind
our brand and in the people and technological capabilities
necessary to realise our full potential as a business. Our
approach has generated strong results in the short term, as
well as strengthening the essential building blocks that will
drive the future success of our business.
As we noted in February 2020, as part of the Board’s
ongoing review of the most appropriate use of capital for
the business, we continue to prioritise investment in growth
and other strategic initiatives. We are committed to ensuring
the optimum use of our financial resources and, at this point,
believe maintaining flexibility for the long term is the more
appropriate approach than a return of capital to shareholders
in the short term.
We are successfully
navigating and safely
operating our business
during these challenging
times always with the
health and wellness of our
employees and partners
top of mind.
I would also like to thank my fellow directors for the significant
increase in workload this year. Our Board has been structured
in such a way to ensure we have a high degree of diversity
and experience with strong local insights into our markets.
For better or worse, this also means we are geographically
diverse and as such, it has required careful planning and
flexibility to ensure our effectiveness through the challenges
posed by COVID-19.
To all our shareholders and other stakeholders, thank you for
your continued support for this business. Wherever you are,
we hope you are safe and in good health.
David Hearn
Chair
18 August 2020
Due to the increasing scale of our infant nutrition business,
we are assessing participation in manufacturing capacity
and capability to complement our existing supply chain
relationships. We have explored a number of opportunities
over the past six months and will update you in due course.
I would like to acknowledge our whole team for the
contribution everyone has made to the business – FY20 was
a year without comparison – we all had to do it differently
to make it happen. On behalf of the Board, I commend
the significant contribution to the company from our Chief
Executive Officer, Geoffrey Babidge, who stepped back into
the business in December 2019. I said at the time we were
fortunate to have someone like Geoff who could assist in this
way, and that could not be more accurate when we reflect
on what transpired in the second half of the year.
I would also like to express how excited we are to have
announced the appointment of David Bortolussi as our
Managing Director and Chief Executive Officer. He is
expected to commence in the role early in the 2021 calendar
year. David has many strengths that make him well suited to
leading the company at this stage of its growth, including
extensive international leadership experience in the consumer
and retail sector.
I also wish to acknowledge the support provided by our
Executive Committee, the management team and all our
staff, including our partners, in ensuring we didn’t miss a
beat through perhaps the most challenging environment that
most of us have ever had to face. On behalf of the Board I
would therefore like to thank this group for their continued
dedication and support for the business.
8 The a2 Milk Company
Building from strength 9
CEO’S YEAR IN REVIEW
STRENGTHENING
EXECUTION
The a2 Milk Company has made significant
gains in revenue and earnings, with strong
performances in all key product segments
and across all core markets.
10 The a2 Milk Company
Building from strength 11
CEO’S YEAR IN REVIEW
PERFORMANCE
OVERVIEW
RESULTS
HIGHLIGHTS
FOR THE YEAR ENDED 30 JUNE 2020 (NZ$)1,2,3
Total revenue of
$1.73bn
32.8%
EBITDA4 of
$549.7m
32.9%
Net profit after tax of
$385.8m
34.1%
Basic earnings per share
(EPS) of
52.39c
33.5%
EBITDA to sales
margin of
31.7%
Operating cash flow of
$427.4m
and a closing cash balance of
$854.2 million
Marketing
investment of
$194.3m5
targeting opportunities in
China and the USA
45.1%
Group infant nutrition
revenue of
$1.42bn
33.8%
China label infant
nutrition sales of
$337.7m
and distribution expanded to
~19.1k stores
USA milk revenue
growth of
91.2%
and distribution expanded
to ~20.3k stores
1
2
3
4
All figures are in New Zealand Dollars (NZ$) unless otherwise stated.
All comparisons are with the 12 months ended 30 June 2019 (FY19), unless otherwise stated.
All figures are quoted based on all operations of the Group, including discontinued operations,
unless otherwise stated.
Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-GAAP measure.
However, the company believes that it assists in providing investors with a comprehensive
understanding of the underlying performance of the business. A reconciliation of EBITDA
to net profit after tax is shown on page 111.
5 From continuing operations.
Our performance was
strong throughout the
year and we demonstrated
significant resilience in the
second half managing the
business in the face of the
COVID-19 global pandemic.
Geoffrey Babidge
Chief Executive Officer
Strong financial results and
execution continuing
Summary of Group performance
The a2 Milk Company has made significant gains in revenue
and earnings, with strong performances in all key product
segments, and across all core markets.
Our performance was robust throughout the year and
we demonstrated significant resilience in the second
half managing the business in the face of the COVID-19
global pandemic.
Through these unprecedented times, we have been fortunate
to continue experiencing strengthening levels of consumer
demand and worked closely with our strategic partners
and customers to ensure supply chains remained open and
consumer needs continued to be met.
We estimate that COVID-19 had a modest positive
impact on revenue and earnings for the year.
Additionally, our business was favourably impacted
by foreign exchange movements.
Our overall result reflects the continued growth in
our infant nutrition segment with sales totalling
$1.42 billion for the period – an increase of 33.8%
on the prior corresponding period.
In line with our strategy, our growth in China label infant
nutrition products was significant, with sales effectively
doubling to $337.7 million. We achieved this while also
continuing to achieve growth in our English label infant
nutrition products with growth of 21.2%.
Our revenue in the third quarter was well above expectations
due to the impact of changes in consumer purchase behaviour
arising from the COVID-19 situation. This included an increase
in pantry stocking particularly via online and reseller channels.
In our view, a proportion of consumer pantry stocking driven
by COVID-19 unwound in the fourth quarter. However,
this will remain a dynamic situation and we will continue
to monitor changes in consumer behaviour moving forward.
We again achieved solid growth in our liquid milk businesses
in Australia and the USA, with sales across the Group1 totalling
$222.0 million up 29.7%. Liquid milk sales in Australia were
up 14.1% to $152.5 million and sales in the USA almost
doubled during the year to $66.1 million, driven by improved
sales velocity in established stores as well as an expanded
store footprint.
Our gross margin percentage1,2 increased to 56.0%,
benefiting from an improved price yield and the positive
effects of currency movements, partially offset by COGS
increases related to infant formula.
During the year we invested $194.3 million1 in marketing,
to drive brand awareness and conversion to trial in our key
growth markets. This was slightly lower than our forecasted
$200 million due to efficiencies in media spend in the
fourth quarter.
We delivered a full year EBITDA margin of 31.7% which was
in line with the guidance we provided in April. Net cash flow
from operating activities for the period was $427.4 million
representing a high cash conversion rate.
1
2
From continuing operations.
Gross margin percentage is calculated as revenue less cost of goods sold,
divided by revenue.
12 The a2 Milk Company
Building from strength 13
CEO’S YEAR IN REVIEW
STRENGTHENING
EXECUTION
Our balance sheet remains in a very robust position. Our
closing cash position of $854.2 million reflects growth in
revenue and earnings. This will continue to be important in
the execution of our growth strategy, including potential
participation in manufacturing.
We finished the year with inventory of $147.3 million. This
was higher than prior years, in part reflecting our growing
business, as well as the decision to carry a higher level
of inventory as a safety buffer given the uncertainties of
COVID-19. Additionally, at the end of the period, we have
recognised a provision for a quantity of finished stock that is
on-hold awaiting further testing to ensure it fully meets our
standard of specification.
Delivering on our strategic priorities
and business objectives
We have made significant progress on the execution of our
strategic initiatives throughout the year.
We are committed to a focused approach to pursuing our
strategic growth priorities:
1. Maximise growth from existing products in core markets;
2. Broaden our product portfolio in core markets; and
3. Expand in other targeted markets.
With the benefit of the comprehensive work undertaken
during 2019 to enhance our understanding of the consumer
and sales channels in our core markets, we have continued
to increase levels of investment in marketing and capability
to execute our growth plan.
In Australia, we have continued to build on our market
leading positions in fresh milk and infant nutrition, whilst
leveraging this to launch new products, such as a2 Smart
NutritionTM, to drive further specialised nutritional products
to consumers graduating from infant nutrition.
In China, we remain focused on strengthening our infant
nutrition position in-market which we believe still has
significant runway for growth. It is pleasing to see our
investments in brand, trade activities and people driving
strong sales momentum, in particular within our China label
infant formula brand, a2 至初®, which now accounts for 24%
of our total infant formula business.
In the USA, we continue to build brand awareness and drive
towards meaningful scale.
Our targeted exploration of new markets continues. In
October we launched a new Hong Kong label range of infant
formula, in December we launched Stages 1-3 infant formula
in Korea with our partner, YuhanCARE (Yuhan), and in March
we entered into a new licensing agreement with AgriFoods
in Canada to produce, market and distribute our fresh
milk brand.
Work progressed during the year to expand our product
portfolio in China. A growing range of long life milk and
powder products targeting families is expected to become
a meaningful growth engine over time.
Capital allocation framework
As we noted in February 2020, as part of the Board’s ongoing
review of the most appropriate use of capital for the business,
we continue to prioritise investment in growth initiatives
ahead of returning capital to shareholders.
As we have announced previously, due to the increasing
scale of our infant nutrition business, we consider it now
appropriate to assess participation in manufacturing capacity
and capability to complement our existing supply chain
relationships. Accordingly, we are presently evaluating
opportunities to address this issue, with significant progress
made during the year.
With our cash balance growing it has become increasingly
important for the business to review our capital requirements
going forward. A significant review of our capital allocation
framework was commenced in the second half with a view
to defining the discipline and prioritisation of our financial
parameters in a way that optimises and supports our
long-term plan.
With the benefit of the
comprehensive work
undertaken during 2019 to
enhance our understanding
of the consumer and sales
channels in our core markets,
we have continued to
increase levels of investment
in marketing and capability to
execute our growth plan.
Leveraging our strategic partnerships
This year has again highlighted the importance of key
strategic partnerships. This remains a core element of our
capital-smart business model.
We acknowledge and thank all our suppliers and customers
for their support and assistance throughout the year. In
particular, we acknowledge our three key strategic partners
China State Farm, Synlait Milk and Fonterra. We have
refocused our relationship with Fonterra and look forward
to potential new opportunities to provide meaningful
benefits to both companies in the medium term.
14 The a2 Milk Company
Building from strength 15
CEO’S YEAR IN REVIEW
STRENGTHENING
EXECUTION
We have substantially increased our
in-market capability with many new
hires to the China team and
further optimised our distributor
arrangements which have allowed us
to improve our in-market execution
at both brand and retail levels.
1. Deliver Asia Pacific sales strategy outcomes
Our Asia Pacific business revenue was $1.66 billion, up 31.5%,
with EBITDA of $690.5 million, up 32.0%. This included:
• ANZ segment revenue of $965.7 million, up 14.6%, with
EBITDA of $465.6 million, up 19.9%
• China & Other Asia segment revenue of $699.4 million,
up 65.1%, with EBITDA of $224.9 million, up 66.7%.
Infant nutrition
Our Asia Pacific infant nutrition portfolio comprising
predominantly China and English label products delivered
$1.42 billion, up 33.8% on the prior corresponding period
(“PCP”). China label infant nutrition products can be sold via
mother and baby stores (MBS), modern supermarkets and
domestic e-commerce retail channels. English label products
can be sold through ANZ retailers, ANZ-sourced resellers and
cross border e-commerce (CBEC) channels. We continue to
leverage a multichannel approach to ensure we can cater to
our consumers’ differing shopping needs.
We have substantially increased our in-market capability with
many new hires to the China team and further optimised our
distributor arrangements which have allowed us to improve
our in-market execution at both brand and retail levels.
Despite COVID-19 causing some disruptions and changing
consumer behaviour across the marketplace, we managed to
maintain our sales growth momentum. However, with a shift
of sales from offline to online channels we chose to pause
some of our marketing plans while we observed the impacts
of these changes. As restrictions eased in China during
the second half, we resumed the scale of our marketing
programme including significant media investment and
working with our distributors and retailers to improve our
brand experience in-store. We are pleased with the impact
this had on sales growth and brand awareness across all our
key channels.
Infant nutrition – China label channels
We achieved sales of $337.7 million for a2 至初® China label
infant nutrition, which was over 100% growth on PCP and
62.7% growth for the half. Our MBS value share was 2.0%
compared to 1.7% at HY20, up from 1.3% at FY19.3
Infant nutrition – Cross border e-commerce
We delivered a2 Platinum® English label infant nutrition
sales of $341.1 million, up 40.3% and reached a CBEC
value share for the financial year of 21.7%, up from
20.6% at HY20 and up from 18.6% at FY19.4
These results are an outcome of consistent investment in
advertising, our strategy of pursuing distribution in high
productivity stores and optimising in-store execution. These
efforts are underpinned by increased data analytics capability
to ensure our investments are optimised.
Offline store closures associated with COVID-19 disruptions
during the third quarter meant we added fewer new stores
to our offline footprint in the second half, increasing to
19.1k stores compared with 18.3k at the end of 1H20.
However, we worked closely with our distributors and retail
partners through these disruptions, including to fulfil orders
via direct home deliveries, within the bounds of internal
travel restrictions.
We launched a China label version of our Stage 4 product
and introduced a tamper-evident lid for our Stages 1, 2 and 3
China label products in December, to further enhance product
security and provide additional differentiation with our English
label products. Our infant nutrition portfolio is complemented
by our other nutritional products as we broaden our appeal to
existing consumers and seek to connect with new consumers.
It was pleasing to see our expanded market share in this
strategically important sales channel given heightened
competitive activity across 2H20 and we continued to
invest in driving demand across e-commerce platforms.
There has been a concerted effort throughout the year
to better track and understand the effectiveness of our
digital marketing tools with an increased focus on data
analytics to further refine and optimise our approach.
This will continue in FY21.
We performed well across the key e-commerce selling
events throughout the year, including “11/11 singles
day” in November and “6/18” in June. For the “6/18”
event, our a2 Platinum® Stage 3 was the top selling
infant nutrition product on JD.com. and, for the first
time, we were the bestselling CBEC IMF brand overall.
On Tmall, we were the second best selling CBEC IMF
brand overall and the number one CBEC flagship store.
Infant nutrition – ANZ retailers and resellers
Our infant nutrition sales in ANZ grew 14.1% delivering
$745.1 million in revenue for the year. We remain the
market brand leader in Australian grocery and pharmacy
channels and continue to invest behind our brand, with
our level of advertising being the highest in the category.
Despite positive growth, COVID-19 related travel
restrictions negatively impacted the reseller channel due
to reduced travel between Australia and China.
3 Source: Nielsen MBS – 12-month market value share.
4 Source: Smartpath CBEC – 12-month market value share.
AUSTRALIA AND NEW ZEALAND
FY20 Revenue
Infant nutrition
Liquid milk
Other nutritional
$965.7m
14.6%
$745.1m
14.1%
$152.5m
14.1%
$68.1m
21.3%
16 The a2 Milk Company
Building from strength 17
CEO’S YEAR IN REVIEW
STRENGTHENING
EXECUTION
Infant nutrition – market share reporting
Our business continues to evolve as we grow, particularly for
consumption of Stages 3 and 4 amongst children above three
years of age, and increased penetration in lower tier cities.
In our view, tracking the MBS channel with Nielsen scan data,
and the CBEC channel through Smartpath, more accurately
reflects our performance and yields greater market insight.
As such we will move to reporting against these sources
externally, in line with industry practice.
Liquid milk
It is pleasing to report that our Australian fresh milk business
continues to perform well with total revenue of $152.5 million.
In our most mature category, we achieved double-digit
revenue growth of 14.1%. Demand in the third quarter and
start of the fourth quarter was particularly strong as consumers
increased their in-home consumption during COVID-19 with
many working from home for extended periods.
Furthermore, a2 MilkTM maintained a 12 month value share
of 11.3%5 despite the strong category value growth caused
by the retail price increase of private label milk. a2 MilkTM
continues to be the only fresh milk brand ranged in all major
supermarket chains and the highest brand advertiser in the
fresh milk category, maintaining very high brand awareness
and loyalty which benefits the portfolio as a whole.
We have also recently entered into an arrangement to
underwrite the expansion of the manufacturing facilities of our
long-term fresh milk supply chain partner in Victoria, Kyvalley
Dairy Group (“Kyvalley”), to support the ongoing growth of
our liquid milk business.
Through this arrangement we will acquire Kyvalley’s Kyabram
milk processing facilities and fund its expansion and upgrade.
Kyvalley will manage the assets under a lease and revised
long-term supply agreement.
The arrangement would involve certified dairy farmers
continuing to supply Kyvalley with raw milk.
The arrangement remains subject to Foreign Investment
Review Board approval.
Other nutritional products
For all other nutritional products, sales increased 29.6%
to $85.2 million.
The most significant proportion of our other nutritional
segment remains a2 MilkTM whole milk and skim milk powder
which is now available in ANZ and China, with further
potential for growth across new channels, particularly in
offline China retail channels.
a2 Smart NutritionTM continues to show positive signs of
becoming a meaningful extension of our infant and children’s
nutritional portfolio. There are encouraging indications
of consumer acceptance, and a China label version of the
product was launched in January 2020, initially with a focus
on gaining distribution in MBS. A bigger roll-out, including a
launch of 200mL a2 Smart NutritionTM UHT will be conducted
into modern trade during FY21 as part of a broader channel
push to engage families across a wider range of a2 MilkTM
based products.
The re-launch of our nutritional product targeting mothers
under new branding and a reformulation of a2 Nutrition for
MothersTM was successfully completed in 2H20.
a2 MilkTM powder blended with Māānuka honey continued to
present some manufacturing challenges during the year, with
the product to be reintroduced in 1H21.
2. Reach meaningful scale in North America
USA
We delivered revenue in the USA of $66.1 million, representing
growth of 91.2% compared to the prior corresponding period
with brand awareness more than doubling, and conversion
rates up significantly. Encouragingly, over 50% of our sales
growth was driven from existing stores.
Our average velocities have grown within our key accounts in
the range of 14% to 74%, with many of our key accounts with
average units per store per week of greater than 20-25 and
some above 40. Given increased investment in building brand
awareness and distribution growth, we recorded an EBITDA
loss of $50.5 million.
Distribution grew to approximately 20.3k stores, from 17.5k
stores at the end of December 2019 and 13.1k stores as at
end of FY19. Leveraging the consumer and channel insights
obtained through a strategic review completed in 2019, we
introduced new packaging and launched a new TV advertising
campaign, both of which received positive feedback from
consumers and the retail trade, and assisted in further building
brand awareness and conversion to trial.
In July 2019, we launched a2 MilkTM Coffee Creamers which
have been received positively and are performing to plan.
As consumer demand for our products builds, and our
distribution footprint strengthens, we expect opportunities
to launch additional new products will emerge. Prior to
COVID-19 our increased in-store merchandising efforts were
delivering encouraging results in enhancing our sales velocities.
Whilst our consumption is up compared to the prior period,
from March, in-store foot traffic during the pandemic
reduced due to retailer safety policies; and purchasing
limitations on milk per visit limited the growth that we may
have otherwise seen for the brand. In the third quarter our
plans to increase the utilisation of a merchandising team
were impacted by COVID-19. However, merchandisers have
returned to stores from July and are having a positive impact
on retail distribution.
CHINA & OTHER ASIA
FY20 Revenue
Infant nutrition
Other nutritional
$699.4m
65.1%
$678.8m
65.2%
$17.2m
78.1%
UNITED STATES
FY20 Revenue
$66.1m
91.2%
18 The a2 Milk Company
Building from strength 19
CEO’S YEAR IN REVIEW
STRENGTHENING
EXECUTION
The impact of COVID-19 in the USA market overall has been
significant. We are seeing that consumers are becoming
more value conscious given economic uncertainties, high
unemployment rates, and have adjusted our FY21 sales and
marketing plans accordingly.
Canada
In March, we entered into an exclusive licensing agreement
with Agrifoods International Cooperative Ltd (“Agrifoods”) for
the production, distribution, sales and marketing of a2 MilkTM
branded liquid milk for the Canadian market.
Hence, in FY21, we will shift our focus away from broadcast
advertising media to a greater emphasis on in- store price and
activation to drive demand. We are planning promotional
initiatives in conjunction with our key retail customers with
the objective of further building our facings and sales velocity.
The outcome of this shift will be growth in volume
accompanied by increased trade spend with net revenue
broadly consistent with FY20. With lower overall marketing
spend we anticipate an improved EBITDA result for FY21.
As we build towards reaching meaningful scale in the
USA, our initial milestone for the business continues to be
US$100 million of annualised sales.
Since March, we have worked closely with Agrifoods,
providing access to our intellectual property and marketing
assets as well as our proprietary systems and know-how
relating to the local sourcing and processing of a2 MilkTM.
Agrifoods is leveraging its substantial capabilities in-market
to establish distribution across Canada and has primary
responsibility for funding this venture. The product has
recently been launched to a number of customers in
Western Canada.
3. Build towards sustainable brand leadership
Building brand value and increasing brand awareness through
marketing investment remains an important focus. We
invested $194.3 million6 in marketing during the year, which
represented a 45.1% increase on prior year driven primarily by
increases in our China marketing investment.
We leveraged our deepened understanding of consumers
and purchasing behaviour in China to continuously improve
our marketing mix which includes consumer advertising,
in-store and event activations, digital live streaming and the
development of a new brand creative platform. While we had
launched this new creative in December 2019, we decided to
temporarily pause and adjust the plan in the third quarter due
to COVID-19. However, we resumed the activity in May as
COVID-19 restrictions in China began to ease.
In addition to consumer marketing, our brand value is
supported by investment in research and development
programmes, an increased focus on sustainability, as well as
initiatives to support the communities in which we operate.
Supporting relevant independently managed scientific
studies remains important as we build our long-term brand
proposition. In September 2019, the results of a clinical trial
from 75 Chinese children aged between five and six with mild
to moderate milk discomfort or lactose intolerance (confirmed
via a urinary galactose test) were published. The study reported
that replacing conventional milk with a2 MilkTM “reduced
gastrointestinal symptoms associated with milk intolerance”
in many subjects and led to “a corresponding improvement
in an aspect of cognitive performance” as measured using
the Subtle Cognitive Impairment Test (SCIT)7. The study was
independently peer reviewed and published in the USA based
Journal of Pediatric Gastroenterology and Nutrition.
6 From continuing operations.
7
Xiaoyang S, Zailing L. Effects of Conventional Milk Versus Milk
Containing Only A2 ß-Casein on Digestion in Chinese Children.
J Pediatr Gastroenterol Nutr. 2019 Jul 9.
Outlook
FY21
Globally, there continues to be uncertainty resulting from
COVID-19, and the potential for moderation of economic
activity. This could impact consumer behaviour in our core
markets, as well as participants within the supply chain,
most notably in China.
Notwithstanding these uncertainties, overall for FY21, we
anticipate continued strong revenue growth support by our
regions supported by our continued investment in marketing
and organisational capability.
FY21 EBITDA margin is expected to be in the order of 30%
to 31% reflecting:
• Higher raw and packaging material costs partially offset
by price increases
• Increase of marketing and investment
• FX benefit of prior year not expected to be replicated
• 3Q20 COVID-19 benefits not replicated.
FY21 Capex is currently expected to be $50 million due to
our ERP investment and capital projects supporting fresh milk
processing in Australia.
Medium-term target
As previously announced, the Board considers it appropriate
that the company target an EBITDA margin in the order
of 30% in the medium term. This assumes the market
performance and mix of our products remains broadly
consistent and the competitive environment evolves as
anticipated. We will keep the balance between growth
and investment under constant review.
Geoffrey Babidge
Chief Executive Officer
18 August 2020
We significantly stepped up our contributions to the
community in 1H20 with donations to the bushfire appeal in
Australia to support regional and rural communities which are
the heart of our milk supply in Australia.
We also contributed through a series of initiatives to support
those impacted by COVID-19 including product donations to
frontline medical workers and consumers in Wuhan, a cash
donation to the Shanghai Red Cross and contributions to two
leading Australian universities for research into a vaccine for
COVID-19.
We are also pleased with the progress we have made in
our sustainability initiatives in FY20. We have significantly
improved the foundations on which we will build a meaningful
and impactful strategy going forward. Central to this is the
recent launch of The a2 Impact FundTM which will be used to
bring together many of the sustainability-related activities we
undertake on a daily basis, as well as amplifying our progress
against a number of identified environmental and social
initiatives and for a range of important stakeholder groups.
4. Deliver the organisation of the future
To support the execution of our overall Group strategy, we
continue to build capability within the organisation. This year
we introduced a number of new roles to complement and
extend our existing capabilities, particularly in-market in China,
the USA, and within certain Group functions. We increased
the size of our team to over 300 people, up 41.0% from
last year.
To enhance our organisational alignment and enable the
right ways of working to deliver on our strategy, we recently
reorganised our most senior executive team to form our
Executive Committee and formed a Senior Leadership Group
which comprises the senior management of the business.
We also established several initiatives designed to enhance
engagement and launched a revised remuneration framework
to align with our strategic direction.
Over the next two years we will be implementing new
information technology systems to support the existing
organisation and provide for future growth.
We also utilised external resources to accelerate the delivery
of certain outcomes and to complement existing internal
capabilities. As we improve internal capability, the composition
and level of external resourcing will moderate over time.
I would also like to take this opportunity to recognise the
efforts of all our people this year. It was one that included a
number of changes and unique challenges, but the team has
continued to drive forward together, building from strength.
We are proud of what we have achieved commercially and of
the way our people went about embracing change, managing
challenges and looking after each other as well as the business
– truly espousing the values of our big small company.
20 The a2 Milk Company
Building from strength 21
SUSTAINABILITY
BUILDING A
SUSTAINABLE
FUTURE
Our integrated approach to building a sustainable
business for the future recognises the needs and
expectations of multiple stakeholders including our
people, consumers, farmers, strategic partners and
investors. We continue to embed this within our
organisation, and in the business activities we
undertake every day.
We recognise we are at the early stages of this
journey. We are pleased with the progress we have
made this year and know there is still much to do.
22 The a2 Milk Company
Building from strength 23
SUSTAINABILITY
OUR
INTEGRATED
APPROACH
In 2019 we recognised the
need to step up our focus and
disclosure in sustainability
and developed our approach,
with the expectations of
multiple stakeholders in mind.
With this as our starting point, we established
an integrated approach to reporting through our
“Six Capitals” framework, seeking to codify elements
within our company that we believe contribute to our
overall ability to create long term value.
Our integrated “Six Capitals” framework defines
our unique way of how we can create value and
enables us to prioritise how we can make a positive
and meaningful impact across the community and
environment in which we operate.
EXTERNAL
MACRO
FACTORS
OUR
BUSINESS
Responsible use of
natural resources
(Natural capital)
HOW WE
CREATE
VALUE
Passionate and
thriving team
(Human capital)
Enriching community
wellbeing
(Social capital)
Unique, premium
brand and IP
(Intellectual capital)
Innovative and
ethical supply chain
(Manufacturing capital)
Capital smart
approach
(Financial capital)
Our purpose is to enrich
lives by harnessing
the nutritional
wonders of nature.
Growing consumer demand for health and
wellness products
A growing awareness of the link between food
and overall health, coupled with rising disposable
incomes, and increased demand for both protein
and gut health.
Rise of the middle class in Asia
Asia’s unprecedented growth is creating large-scale
opportunities for individuals, businesses and nations.
Growing focus on food safety, naturalness
and provenance
Increasing consumer conscious of food safety
and product origins.
Rapid pace of digitalisation
The rise of digital connectivity and innovation,
and e-commerce generally, is changing consumer
experiences and behaviours.
Complexity of doing business in
international markets
Doing business across borders is becoming more
complex and, more recently, harder to predict.
Challenge of climate change and pressure on
agricultural systems
The physical impacts of climate change are
materialising with increased frequency and intensity.
Creating value and addressing impacts on the
environment and our climate are inextricably linked.
Our Purpose
Our purpose is to enrich lives
by harnessing the nutritional
wonders of nature.
Our Values
• Bold passion
• Pioneering spirit
• Humility
• Respect
• Integrity
Our Strategy
1
2
3
Expand in
other target
markets
Broaden
product
portfolio
in core
markets
Maximise
sustainable
growth
from
existing
products
in core
markets
Building towards sustainable brand leadership
Delivering the organisation of the future
24 The a2 Milk Company
Building from strength 25
SUSTAINABILITY
OUR SIX CAPITALS
HOW WE CREATE VALUE
There are six core elements, or sources of capital, embedded in our
value creation model. Our strategy depends on success across each
given the inter-connected nature of our business model.
Unique, premium
brand and IP
Intellectual capital
Passionate and
thriving team
Human capital
Capital smart
approach
Financial capital
Our trusted brand, our proprietary know-
how and A2 protein expertise are our
most valuable assets. We are committed to
maintaining and sustainably growing these
assets with ongoing investment.
Our premium brand is strengthening in
awareness, consumption and loyalty to
varying levels across our key markets. We
invest significantly to grow and protect our
brand and its trade marks in all product
categories and regions.
Through ongoing science and research
and development programmes, we are
deepening our expertise and advancing
global understanding of the potential
health benefits of a2 MilkTM. In addition,
we have a belief in the power of science
and will continue to invest in research
programmes that lead to the betterment
of our community at large.
Metric
FY20
FY19
FY18
11.5% 10.9% 8.5%
% revenue
invested in
marketing/R&D/
IP
1
2
3
We formed our Executive Committee in FY20.
In FY19 and FY18, this shows equivalent
membership in each of those groups.
Sub-total for senior leaders is the total of
Directors, Executive Committee, Senior
Leadership Group and Managers.
Calculated using average capital employed,
including cash and investment in Synlait Milk
Limited.
Through a purpose-driven culture
underpinned by our values, we aim to create
an environment that provides our people with
opportunities to thrive. Our success is the result
of our diverse, skilled and engaged workforce
which is aligned and focused to deliver on our
purpose and strategy.
Through our diversity and inclusion comes
creativity and thinking that goes beyond
the conventional. This is how we overcome
challenges and unlock extraordinary opportunity.
Our Diversity Policy empowers and equips our
people leaders to foster a diverse, inclusive and
competent workplace. We of course believe
that diversity includes differing beliefs, gender,
age, ethnicity, physical abilities and cultural
background; which when combined with an
inclusive mindset, will enhance the business
overall. During FY20, we were focused on
enhancing gender balance in our workforce,
having set a target of a minimum of 40%
women, and a minimum of 40% men, across
leadership positions.
Metric
Female
Directors
% of total
Executive
Committee1
% of total
Senior
Leadership
Group1
% of total
Managers
% of total
Sub-total for
senior leaders2
% of total
Other staff
% of total
Total
% of total
FY20
FY19
FY18
2
40%
2
22%
2
33%
5
42%
1
17%
1
10%
9
36%
8
31%
8
38%
17
45%
30
45%
142
56%
172
54%
18
49%
25
45%
98
57%
123
54%
18
49%
20
38%
79
62%
99
55%
Our business model is built on deep and
long-term strategic partnerships both
commercially and operationally. Our
farmers and processing partners are some
of our longest-standing relationships.
Together we have built a very successful
community of businesses – big and small.
This ecosystem underpins our “capital
smart” business model and has given
us the ability to grow rapidly, while
also building a strong balance sheet for
continued growth.
Our robust balance sheet position and
unique proposition provide a strong
platform for continued growth. We make
considered decisions about the use of our
capital, making decisions to invest where it
is strategic to do so.
Metric
Revenue
($bn)
Return
on capital
employed3
Operating
cash flow
FY20
FY19
$1.7
$1.3
FY18
$0.9
56.3% 61.2% 70.4%
$427.4m $289.1m $231.1m
4
5
Greenhouse gas emissions, calculated as
tonnes of carbon dioxide equivalent (tCO2e),
have been estimated using the approach
recommended by The GHG Protocol. Emissions
and conversion factors were sourced from
the National Greenhouse Accounts Factors
for Australia, the UK DEFRA GHG conversion
factors and a range of other country-specific
sources. Where required, non-direct emissions
sources have been estimated using default
and/or extrapolated emissions intensity rates
to provide a more complete picture of our
Scope 1, 2 and 3 carbon footprint. Total
emissions calculations exclude packaging. We
expect data quality to improve over time as we
continue to work with our partners.
Includes natural gas estimates and/or
extrapolations for some information not yet
available.
Responsible use of
natural resources
Natural capital
Access to natural resources and a thriving
agricultural sector is fundamental to
our business. We recognise that climate
change and pressures on agricultural and
food systems present a systemic challenge
for our world – and we’re committed to
finding unique and high impact solutions
across our value chain to help address
these challenges.
We are committed to the global ambition
of the Paris Agreement and a 2050 net
zero emissions target, as are our key
suppliers and strategic partners.
Whilst our total emissions have increased,
that is a likely outcome of a high growth
business. Despite this we recognise we
need to make more tangible efforts,
alongside our partners, to reduce our direct
and indirect emissions over time.
Innovative and ethical
supply chain
Manufacturing capital
Complementing our own fresh milk
production capability, we work closely with
our suppliers to develop a reliable and
responsible sourcing and manufacturing
supply chain over time. We believe this
is critical to our long term success. Our
strategic supply chain partners share our
ambition on quality, environmental and
ethical values. This includes food safety and
quality management programmes audited
by accredited third party agencies.
It is important to recognise the unique role
that farmers play in our supply chain. We
fund a premium to all farmers for our milk,
recognising their hard work to maintain
our very high herd management and
quality standards.
FY20
FY1910
FY18
488,852 413,233 409,464
224
206
187
1,609
1,507
1,502
487,020 411,520 407,775
3,858
4,923
3,930
Metric
% of fully recyclable
packaging
Smeaton Grange
Total water usage
(‘000 litres)
Water efficiency
(litres/litre of milk)
Waste water diverted
to beneficial land
application (litres)
FY20
FY19
95.9% 95.5%
27,662
24,744
0.7
0.5
919,900 516,500
8
9
Enriching community
wellbeing
Social capital
We take our responsibility to the
communities in which we operate very
seriously.
We recognise our responsibility to support
the resilience of our farming communities.
In addition we also are making increasing
investments within our broader
communities to support their health and
wellbeing, and enable them to both survive
and thrive.
As we continue to grow, we are committed
to doing more to support the communities
in which we operate.
Metric
Donations of cash and
products ($NZ)
FY20
FY19
2.80m 0.94m
and water consumption. Where required,
estimations have been made where data
was not able to be directly sourced or where
data was not yet released. This includes
assumptions and extrapolations from available
data. Moving forward, we will endeavour
to source as much actual data as possible to
improve data quality.
Includes our own fresh milk processing facility
and corporate operations.
Calculated using actuals and industry
estimations based on milk unit sales for all
farms in Australia, NZ, the US and the UK,
excluding Synlait for which emissions are
estimated based on our proportion of total
output.
Waste produced (tonnes)
28.9
25.6
131,273 102,288 103,869
Waste diversion
Energy consumption
(kWh)
97.1% 95.4%
1.7m
1.7m
10 GHG emissions have been restated to reflect
updated external modelling used to calculate
GHG emissions in New Zealand, improved land
use efficiency and improved herd productivity.
Metric
GHG
Emissions4
(tCO2e)
Total
Scope 15
Scope 26
Scope 37
Direct
operations8
(Scope 1, 2
and 3)
Third party
processing
and freight
On-farm9
353,722 306,022 301,665
6
Includes electricity estimates and/or
extrapolations for some information not yet
available.
7
Due to the nature of Scope 3 emissions
occurring outside of areas under our direct
control, this represents a conservative estimate
of our Scope 3 emissions. Key emissions
sources include: on-farm emissions, energy
consumed within third party processing
and warehouse facilities, fuel consumed in
freight logistics and business travel, as well
as emissions associated with waste, recycling
26 The a2 Milk Company
Building from strength 27
SUSTAINABILITY
OUR
FOCUS
AREAS
In FY20 we identified a
number of focus areas to
enhance our efforts to
become a more sustainable
business for the future. These
included: our people, our
farms, understanding climate
impacts, doing business the
right way and supporting our
communities to thrive.
While we are pleased with our progress, we recognise
we are on a journey and have more work to do. Over
the coming year we will continue to advance our
efforts within these focus areas.
We are also pleased to announce that we will be
creating The a2 Impact FundTM. The aim of the fund is
to take an umbrella approach to coordinating all the
investments and efforts we are making in developing
a more sustainable business.
In the following sections, we provide more detail
on our approach to our focus areas, including
our next steps.
Human
capital
1. OUR PEOPLE
We are a company proud of our New Zealand origin and
proud that we take our products to the world. Our roots
are embedded in a pioneering spirit and we seek to make
a fundamental difference in people’s lives.
Our focus is to build the organisation of the future
through capability, performance and engagement. We are
working to protect our culture and foster an environment
of inclusion, passion and agility; whilst increasing our
capability and head count to support our growth.
We delivered a comprehensive programme of activities
throughout the year to drive culture, promote inclusion
and connect our people with the business.
We conducted our first all of company engagement survey
with a participation rate of 83% and an engagement score
of 84%. We will continue to monitor this metric year on
year, to gauge the effectiveness of our activities and to
ensure we are evolving our organisation and its people
to deliver on our strategic fundamentals.
Building capacity and capability
across the organisation
To enable our strategy, we continue to focus on ensuring the
right operating model and organisational design. In FY20 we
grew our workforce by 41% to deliver the capability needed
in our growth markets but also to enhance the development
of key areas in our Group functions.
To enhance our organisational alignment and enable the
right ways of working to deliver on our strategy, we recently
reorganised our most senior executive team to form our
Executive Committee. This did however result in a decline in
gender diversity at this level due to the re-allocation of roles
to new levels.
Length of service
5+ years
2-5 years
0-2 years
11%
20%
69%
Age group
Over 50
30-50
Under 30
23%
65%
12%
Female composition
Total employees 54%
Senior leaders 45%
p a s s i o n
d
n
P urp o s e a
F o r you
S
u
r
r
o
u
n
d
i
n
g
e
n
v
i
r
o
n
m
e
n
t
Lif
e b
alance
Physical h
e
alt
h
M
i
n
d
a
n
d
w
e
l
l
b
e
i
n
g
d le arning
n
h a
G r o w t
In FY20 we focused on a capability “buy” and “build”
strategy where we recruited a number of new people to the
organisation but also introduced a number of professional
development and coaching initiatives to develop technical and
leadership capabilities across the business to support growth
as well as succession planning.
Investing in our people
In FY20 we invested more in our people than ever before.
We launched our integrated people experience programme,
a2 For You™ – helping you be your best self. It is a
framework that allows us to articulate the employee value
proposition and assist employees to navigate all programmes
and support so that they can be their best self when they
come to work.
Key programmes launched under a2 For You™ in FY20
included:
• The a2 Milk Company culture programme to align people
to our purpose, values and strategy
• Our performance and development programmes, including
the launch of a2 University
• A new remuneration and reward policy and programmes
• Our health and wellbeing programme
• A number of new or revised people policies including
recruitment, diversity and inclusion, and flexible working and
• Upgrading of our online governance and compliance
training.
Embedding safety, ethics and
compliance systems
Across our value chain, we aim to operate safely and ethically,
including with respect for human rights and in compliance with
all local requirements, including anti-bribery and anti-corruption.
We continue to invest in our people and systems to build
capability to meet our strict product quality and food safety
standards. Further, we have embedded monitoring and
compliance systems specific to the regulatory environments in
each market we operate in.
In FY20 we implemented a new global Safety Management
System to support the education, leadership and governance of
workplace health and safety across all our sites and operations.
We undertook an assessment of human rights and other ethical
risks in our value chain to ensure alignment of our supply chain
management approach with our fundamental values of respect
and integrity. We have provided details in the following case
study “Doing business the right way”.
We revised or developed a number of policies within the
business to facilitate an inclusive environment. This included our
recruitment policy which clearly articulates the importance of
equality and our flexible working policy which articulates various
work arrangement options to cater for the various life and work
responsibilities of our people.
As such, we continue to build a diverse and inclusive community
of great people throughout the company and at all levels of the
organisation.
Ensuring engagement through
COVID-19
One of our key business objectives is to deliver the organisation
of the future, and this goal remains unchanged during these
unprecedented times.
Given the challenges caused by COVID-19, the way we delivered
against this objective needed to be adjusted in FY20. We
needed to be agile, and this required that our teams work
differently, relying on their resilience to balance and juggle the
competing demands of life and work.
Keeping our team safe during these times has been a priority.
We were already remote-ready, and as different offices
moved to work from home, we had laptops, virtual meeting
infrastructure and IT support already in place. Being agile
and flexible was crucial to the success of keeping everyone
connected with business running as usual.
We have also been able to supply teams with personal
protective equipment and sanitiser. We also adjusted the
working environments to cater to social distancing in
preparation for return to the office (desk dividers, temperature
checks, sanitiser and splitting of team attendance in offices).
We conducted regular surveys to check in with our people –
seeking to understand primary concerns so that we are best
placed to support them in those areas.
28 The a2 Milk Company
Building from strength 29
SUSTAINABILITY
OUR FOCUS AREAS
Social
capital
Natural
capital
Manufacturing
capital
2. OUR FARMS
The relationships we have with our farmers are pivotal to our
business. We are proud to have always paid a premium for
our milk but want to ensure we don’t stop there. We are on
a journey to improve the animal welfare and environmental
plans we have in place at each and every farm.
Animal welfare
Central to the responsible sourcing of our products are best
practice standards for animal welfare on our farms. This year
we’ve been investing in and building on our global animal
welfare programme, which goes above and beyond in
ensuring the proper care for animals on our supplier farms.
The programme meets globally recognised standards set
by the World Organisation for Animal Health and upholds
the Five Freedoms framework for animal welfare. The latest
evolution of our animal welfare programme includes further
transparency, measurability, risk mitigation and efficiency.
In FY20, we built a number of extensions into the programme,
supporting our farmers to establish systems for continuous
improvement in animal welfare. We will continue to monitor
our approach and always be seeking to identify ways to further
improve our programmes beyond the industry standard.
Our target is for 100% of our farms to be certified under our
upgraded programme by 2023.
Farm environmental plans
We are developing a globally consistent framework for our
Farm Environmental Plans. More than 65% of farms supplying
us milk already have a Farm Environmental Plan in place, and
the new framework will ensure consistency in measurement
and standards across our global farm network.
The principles of the framework address the most material
aspects of environmental management in the dairy industry:
1. Lowering GHG emissions
2. Managing water quality and efficiency
3. Managing soil quality
4. Boosting on-farm biodiversity
5. Improved nutrient (effluent) management
Our Farm Environmental Plans will be a critical foundation
for our on-farm sustainability initiatives. Consistent standards
and data will help us to identify priority areas for investment,
measure improvement, and reward positive performance.
What’s next?
We will be applying new learnings to our animal welfare
approach, and will continue to refine the programme
in FY21, with a particular focus on meaningful training
opportunities for our farmers and scaling the use of
technology on farm to enable real time visibility.
We will be continuing to consult with our strategic
supply partners, farmers and industry experts to further
develop and improve our Farm Environmental Plans.
We will be working with farmers to roll out these new
plans in FY21.
We will continue to iterate and improve these plans
moving forward.
Natural
capital
Manufacturing
capital
Intellectual
capital
3. UNDERSTANDING
CLIMATE IMPACT
The impact of climate change has the potential to drive
significant structural transformation across the dairy sector.
The sector will need to take concerted action to manage
the risks and opportunities associated with a move towards
a lower carbon footprint. The risks include regulatory, such
as carbon pricing, and market risks, such as changes in
consumer preferences.
In addition, the sector’s reliance on natural systems and
vulnerability to changes in temperature and rainfall will also
drive mounting physical risks across agriculture. There will also
be extraordinary opportunity for the sector to realise increased
productivity and efficiency through new technologies and
practices that lower emissions and environmental impact
throughout the supply chain.
We recognise that how we position ourselves in response
to these climate risks and opportunities will determine how
“future fit” our business is. We would like to take a proactive
approach to integrating climate considerations into our
strategic decision making, but we are only at the start of this
journey. By taking a more concerted approach we will aim to
reduce disruption to our business and yield long term benefits
for both ourselves and the environment in totality.
As part of our ongoing commitment to TCFD1 implementation,
in FY20 we performed climate scenario analysis for the first
time. We assessed transition and physical risk under a 2ºC
and 4ºC change in temperature scenarios. The scenarios were
developed to be consistent with global best practice, including
the TCFD principles. Our analysis combined internal and
external data and assessed impacts on an unmitigated basis.
It has enabled us to model the potential financial impacts of
climate change on our business, taking a longterm view out to
2050, to inform strategic and financial planning today.
Our preliminary assessment of first order impacts indicates
that, relative to the global dairy industry, our business model
has some positive levels of resilience to transition and physical
climate-related risks. Further work will be undertaken in
FY21 to further understand potential impacts to our product
categories (notably infant formula and liquid milk) and will
include stress testing of our resilience against second-order
structural impacts and risk inter-dependencies.
What’s next?
The next steps in our TCFD journey include developing
short, medium and long-term targets, deepening our
scenario analysis in specific impact areas, structural
impacts and risk interdependencies.
In FY19 and again for FY20, we elected to purchase
carbon credits to offset our greenhouse gas (“GHG”)
emissions across all our direct and indirect operations.
For FY21 we will reduce the amount of carbon credits
we purchase to only cover our “direct operations”
(Scope 1,2 & 3). We will redirect the value of our
indirect GHG emissions into The a2 Impact Fund™ for
investment in tangible climate-related programmes that
will create a positive impact on the planet, and will also
benefit our business over time.
We are committed to measuring and reducing our direct
and indirect emissions, and will continue to report on all
our GHG emissions as we progress towards our 2050 net
zero emissions target.
One example of where we will focus our investment is in
a recent agreement to become a research partner with
Sea Forest Pty Ltd (“Sea Forest”).
Sea Forest is a leader in the development of
Asparagopsis (a type of seaweed) as a natural feed
supplement to cows in order to actively reduce their
methane emissions. This partnership aims to unlock
new research and trials required to test the viability,
scalability and positive impact that an Asparagopsis feed
supplement could have on the environment. While the
science is still in its infancy, we see that this could be a
game-changer for the industry. We have provided our
commitment of up to $500,000 in year one for an initial
programme of research.
In addition, at our milk processing facility in Smeaton
Grange, we will be installing solar on our new roof
space, and converting the lighting in our expanded
facility to LED lights. Combined, these initiatives will save
164,000 kilograms of carbon dioxide emissions per year.
1 TCFD: Task force on Climate-related Financial Disclosure
30 The a2 Milk Company
Building from strength 31
SUSTAINABILITY
OUR FOCUS AREAS
Natural
capital
Manufacturing
capital
Intellectual
capital
Social
capital
Intellectual
capital
4. DOING BUSINESS
THE RIGHT WAY
5. SUPPORTING OUR
COMMUNITIES
Integrity is one of our core values – doing the right thing
is our promise to our people, consumers and strategic
partners and is critical to our long-term success.
As our company evolves, we continue to improve on our
internal processes and approach to responsible business.
Building on these processes, an area of particular focus
has been pro-active engagement across our broader
industry and value chain. Responsible sourcing and
responsible marketing continue to be priorities.
Review of our supply chain
In FY20 we undertook a detailed review of our supply
chain, to ensure that throughout our value chain we
are upholding our commitment to sustainability and
ethical business. Our review concluded with a number
of governance initiatives, including strengthened policies
and standards for our company and our suppliers and
training for our employees and farmers. Furthermore,
to strengthen our long-term commitment to sustainable
packaging, we recently became a signatory to the
Australian Packaging Covenant, committing to meet
Australia’s 2025 National Packaging Targets.
Responsible marketing
Our approach to marketing infant nutrition aligns to
the core principle that we support breastfeeding as the
primary form of infant nutrition.
We have developed a premium, high quality range
of infant nutrition products to provide parents an
alternative when breastfeeding is not an option.
Marketing of Infant Formulas (MAIF Agreement)
and Infant Nutrition Council
We are a signatory to the Marketing in Australia
of Infant Formula: Manufacturers and Importers
Agreement (MAIF Agreement). We are also a member
of the Infant Nutrition Council, which represents the
major manufacturers and marketers of infant formula
in Australia and New Zealand. All members abide by a
Code of Conduct including the MAIF Agreement and
The Infant Nutrition Council Code of Practice for the
Marketing of Infant Formula in New Zealand (INC Code
of Practice).
We continue to seek to improve and increase the support we provide
the communities in which we do business – this is important to us and
linked to our purpose and values. This takes the form of funds to help
our communities to survive and thrive. In addition, we also believe
science plays an important role in enhancing the health and wellbeing
of our communities over time.
Research to assist children’s health and well-being
Cure Kids was founded in 1971 by Sir Robert (Bob) Elliott and Rotary
New Zealand, as a Child Health Research Foundation. Cure Kids is
the largest funder of child health research outside the New Zealand
government. We are proud to have been financially supporting the
world-class research of Professor Andrew Day, into digestive health
and irritable bowel diseases amongst children, over the last three
years to a total investment value of $600,000.
Supporting our rural communities in need
In the summer of 2019-20, much of Australia was devastated by
ongoing bushfires. The bushfires impacted businesses, livelihoods
and the environment, particularly in regional communities. We
supported affected communities by donating $200,000 to help
those in need; $150,000 direct to the Red Cross Disaster Relief and
Recovery fund and the balance to go towards product donations. Our
partners at Foodbank coordinated the distribution of our products to
fire-affected communities in Victoria and New South Wales.
Supporting Chinese families in the early outbreak of
COVID-19
During the period we also provided support for Chinese families
affected by the early outbreak of COVID-19. China, and Chinese
families, in particular, are at the heart of our business. We donated
a2 Milk™ dairy products with our strategic partner China State
Farm, who assisted with the dispatch of these products to front-line
medical teams and families affected by COVID-19. We also donated
RMB 5 million to the Shanghai Red Cross to support the areas
and people severely affected by the disease.
COVID-19 research support for a vaccine
We made additional contributions to help fund independent research
to find a vaccine and stop the spread of the disease. We proudly
donated $500,000 to each of The University of Queensland’s School
of Chemistry and Molecular Biosciences and the Peter Doherty
Institute for Infection and Immunity (Doherty Institute) – a joint venture
between the University of Melbourne and the Royal Melbourne
Hospital. The research teams at each of these organisations are playing
a leading role in the international effort to develop a vaccine for the
virus. As of July 2020, The University of Queensland’s COVID-19
vaccine research has progressed significantly, with the research efforts
moving out of the lab and into human trials.
INTRODUCING
The a2 Impact FundTM
We are creating The a2 Impact FundTM
as our vehicle to fund and manage our
intended investments in pursuit of our
sustainability goals.
Protecting and improving our
environment for future generations
Enabling happy and healthy cows
Advancing wellness with scientific,
health-related research and IP
From FY21, we will redeploy (at a minimum) the
financial contribution that was to fund our carbon
credits offsets for our indirect GHG emissions, into
environmental programs that are more tangible
in actively reducing our emissions over time and
improving our overall climate impact.
We will also invest additional funds to further support
our animal welfare, people and community programs.
Supporting communities
Our guiding principles:
Creating a workplace where our
people are passionate and thrive
• Initiatives will need to build and maintain value
across one or more of the Six Capitals
• Impact – today or its future potential – is material
• Global framework will be adapted for local impact
• The a2 Impact FundTM will be underpinned by
transparent and robust governance, and will have
oversight by our Board and Executive Committee.
By integrating funding initiatives under one umbrella
– we believe they can create a greater positive impact
overall and improve the sustainability of our business
into the future.
32 The a2 Milk Company
Building from strength 33
SUSTAINABILITY
RISK
MANAGEMENT
Effective risk management is
an essential part of actively
growing and developing a
successful business.
Effective risk management anticipates risk and
develops strategies to manage risk events, helping
to drive informed and consistent decision making
and effective and efficient allocation of capital
and resources. Our risk management programme
assists us in identifying, assessing, monitoring
and managing our business risk, and recognising
material changes to our risk profile.
Our Risk Management Policy outlines the
programme we have implemented to ensure
appropriate risk management within our
processes, systems and culture. A copy of the
Risk Management Policy is available at www.
thea2milkcompany.com/corporate-governance.
Identifying and responding to risk
Our risk assessment process begins with the
identification of key sources of risk relevant to the
activities of our business. This approach facilitates a
comprehensive assessment of potential risk events
and allows appropriate management strategies to
be subsequently employed.
The following table identifies significant sources
of risk for the business, including key economic,
environmental and social sustainability risks with
the potential to materially impact our ability to
achieve our objectives. It also summarises how we
are responding to those risks.
Sources of risk and potential risk events
How we are responding
Sale of nutritional food products
We supply food products for human consumption, including complex
nutritional products for consumption by infants and children. As a result,
our business is inherently exposed to potential product quality, food safety
and/or food integrity events (including counterfeiting or tampering) that
may cause injury to consumers, disruption to business activities, and overall
damage to our brand and reputation.
High-growth business in competitive markets
Our business has experienced significant growth in recent years, driven
predominantly by the success of our liquid milk and infant formula
businesses in Australia, China and the US. Our strategic growth priorities
seek to ensure we continue to deliver long-term growth in existing and new
markets. As a result, we are inherently exposed to:
•
increasing competitive intensity, which could lead to an erosion of our
market share positions in core markets; and
• potential infringements of our intellectual property rights resulting
from third-party conduct or claims against such IP, which may lead to
protracted litigation and/or erosion of our brand assets.
Doing business in international markets
Due to our expanding footprint, our business is exposed to various risks
associated with conducting business in international markets including in
Australia, China and the US. As a result, we are inherently exposed to:
• dynamic geopolitical and regulatory environments in which government
actions influence or restrict international trade in products and/or
channels to market. This can occur through the use of tariffs, quotas,
price controls, taxes and non-tariff barriers such as product registrations,
competition and consumer laws; and
• a failure to renew the company’s China label infant formula SAMR
product registration1 beyond its expiry in September 2022, with this
expiry date potentially being subject to a grace period.
Reliance on strategic partnerships
Our success is underpinned by key relationships with strategic partners,
including key supply and distribution partners. As a result, the business is
inherently exposed to the operations of key partners changing in a material
and adverse way, or as the result of one or more partners reducing their
support for us. This could impact our ability to maintain supply to our
customers and maintain our position in existing markets or enter
new markets.
We have a range of product quality and food safety systems, protocols and technologies in place to minimise risk in this area, including:
• food safety and quality management systems;
• high quality third party manufacturing partners;
• positive release protocols (comprehensive testing of product quality and protein integrity prior to the release of finished product);
• testing of distributed products in selected markets;
• employment of product innovation and technology to improve product security e.g. tamper-evident lids;
• product recall and crisis management systems; and
• consumer support systems.
Our strategic growth priorities are aided by:
• significant and ongoing investment in brand building activities globally;
• new and unique product offerings in selected markets;
• continued investment in developing and further broadening our trademark and patent portfolio including building exclusivity in
trademarks in existing and future markets and expansion of the company’s suite of patent families;
• monitoring of third party IP applications and activity;
• monitoring infringement of our IP and taking action to protect it; and
• documenting and embedding proprietary know-how across systems and processes.
Our efforts to effectively navigate the complexities of international markets are supported by:
• strong understanding of local standards, regulations and guidelines combined with sophisticated expert monitoring of evolving
regulatory requirements in all markets in which we operate;
• recent appointment of a Group Head of Government and Regulatory Affairs to build connections across government in all markets
and further develop strategic understanding of regulatory environments;
• close partnership with our infant formula manufacturer, Synlait Milk, which holds:
– GACC2 registration for its Dunsandel manufacturing facility, allowing canned infant formula to be exported to China; and
– SAMR product registration for the importation of the company’s China label infant formula through to September 2022;
• strong and experienced local management teams in our core markets of Australia, China and the US; and
• a multi-product, multi-channel route to market strategy for the sale of infant formula into China.
Potential exposures are mitigated through the proactive management of partner relationships centred on shared long-term value
creation, which includes:
• a focus on developing strong, ethical, long-term commercial relationships with multiple supply chain partners in different geographic
locations;
• due diligence on supply chain partners before entering into commercial agreements;
• long-term partnership with dairy nutritionals manufacturer, Synlait Milk, governed by a formal manufacturing agreement, and
complemented by the company’s equity interest in Synlait Milk;
• a strategic relationship with Fonterra Co-operative Group Limited, providing multi-site and geographic diversification for our growing
nutritionals business;
• a strong partnership with China State Farm Holding Shanghai Co., Ltd, our exclusive import agent for our China label products;
• contracts providing access to milk pools that exceed our current usage requirements; and
• multiple milk processors contracted in Australia and US, mitigating reliance on a single processor in these regions.
1
Registration achieved by Synlait Milk and given by China’s State Administration of Market Regulation (SAMR) in September 2017 for the company’s China
label infant formula. SAMR requires registration to be held in the name of the manufacturer as opposed to the brand owner.
2 General Administration of Customs of the People’s Republic of China.
34 The a2 Milk Company
Building from strength 35
SUSTAINABILITY
RISK
MANAGEMENT
Sources of risk and potential risk events
How we are responding
Climate change and reliance on natural resources
As a business that is heavily dependent on agricultural inputs, we are exposed to short, medium and long-term climate and
environmental risks. These include both supply and demand side risks including:
• physical risks resulting from acute and chronic changes in climate. The productivity of our agricultural base could be impacted
by changes in temperature and rainfall resulting from climate change, generating potential supply chain disruptions or greater
volatility in input costs;
• transition risks resulting from regulatory or market pressures associated with on-farm emissions. On-farm emissions account
for 72% of The a2 Milk Company’s GHG emissions footprint. These emissions could be exposed to carbon pricing, generating
increased input costs or shifts in consumer preferences due to growing environmental concerns; and
• other environmental risks such as deforestation, animal disease outbreak, biodiversity impacts, soil and air quality impacts,
water use and animal welfare. The growth of conscious consumerism and increasing expectations around the environmental
responsibility of consumer products means that exposure to these risks could negatively affect our brand reputation. This is
particularly significant as demands for transparency around these issues increase and supply chains come under greater scrutiny.
Reliance on talent and culture
We rely on the talent of our people and the effectiveness of our culture for success. Therefore, keeping our people safe is a top
priority. The competitive nature of the job market and our positioning as a high growth business also contribute to risks associated
with managing our talent and culture:
• actual or potential harm to all workers and other persons at the workplace (including from non-compliance with applicable laws
and regulations). In addition to any harm itself, this could also result in financial penalties, drop in staff morale and productivity,
increased insurance costs and damage to our reputation;
loss of key management personnel, in addition to the potential loss of their teams, could also have a material effect on our
operating and financial performance;
•
• resource constraints resulting from business growth out-pacing talent acquisition; and
• building organisational capability through the recruitment of external hires carries with it the potential for transition risk.
Rapid change in information technology (IT)
The rapid change in IT provides both opportunities and risks. Incidents of cyber-attack and the release of data have become an
increasing threat for all companies. The cyber security and data environment is continuously evolving and, as a result, we are
inherently exposed to inadequate IT security leading to a compromise of our IT systems and potential data theft, data loss or
corruption. Such a compromise could result in economic or reputational loss.
We are responding to growing demands for transparency by integrating the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) into our strategic planning and risk management processes, with the intention of adopting the full TCFD
disclosure by the end of FY22. More detailed information regarding TCFD and scenario analysis can be found in the case study on climate
risk analysis on page 31.
We are managing our exposure to climate and environmental risks by:
• assessing baselines and short, medium and long-term targets3 across GHG emissions, energy and water consumption, waste-to-landfill
and product packaging within our direct operations and supply chain;
• building long-term supply arrangements with partners, promoting positive environmental and social sustainability activities and
initiatives and implementing environmental plans on all farms by 2021;
• sourcing milk from diversified milk pools within New Zealand, Australia and the US and incorporating climate impacts into future
sourcing strategies;
• sourcing milk from farms in close proximity to our processing facilities wherever practicable, reducing the need to transport milk over
long distances from other areas; and
• implementing a best practice globally certified animal welfare standard across our operations, aligned to the Five Provisions and Animal
Welfare Aims.
We are committed to the safety of our people and have established systems and processes to identify, control, report, investigate and
monitor health and safety risks across the business.
Believing that well-managed, engaged and effective teams create long-term business success, our efforts are aided by:
• a rigorous recruitment and selection process, followed by thorough induction and onboarding;
• an effective employee retention strategy combining both short and long-term financial incentives with career development
opportunities to motivate and engage key personnel;
• strong cultural values – bold passion, pioneering spirit, humility, respect and integrity – which assist both the company and employees
in achieving their goals;
• increasing the depth and capability of the senior management pool to support future growth; and
• succession planning to ensure continuity of knowledge, skills and experience.
We remain focused on further strengthening our governance, processes and technology controls to protect the integrity and privacy of
data and maintain compliance with regulatory requirements.
We continue to build our cyber resourcing capability and improve our cyber security systems and protections, including restricting access
to sensitive data, conducting regionally-specific cyber security audits and maintaining cyber security insurance.
We have also identified the need to complete third party cyber risk reviews and are currently agreeing scope and timing with
identified parties.
We are implementing our new enterprise resource planning (ERP) software with a view to not only improve our overall IT infrastructure
but also reducing the number of different applications in use across the organisation, allowing the protection protocols in place to be
streamlined.
Ongoing impacts from the COVID-19 global pandemic
The COVID-19 pandemic has caused unprecedented social and economic disruption globally. Until the pandemic is contained, the
business remains exposed to several possible COVID-19 related consequences, including:
The Company has to date demonstrated resilience in the face of the COVID-19 pandemic, supported by a strong underlying demand for
the company’s products, and the focus of senior management on key initiatives, including:
• the adoption of robust health and safety protocols in line with all relevant government requirements, including across our Smeaton
• a weakened global economy – characterised by elevated levels of unemployment and reduced disposable income – resulting in
Grange liquid milk processing facility;
disruptions to consumer buying patterns and/or softening consumer demands in key markets;
• a possible unwinding of FY20 consumer pantry stocking for infant formula, which had some positive impact on FY20 sales;
• disruptions to sales channels – including the effect of ongoing travel restrictions on reseller channels between Australia and
China; the impact of weakened economic conditions on the viability of some off-line distribution networks within China; and
trading restrictions for retailers, including limitations on product purchasing and in-store foot traffic, and access restrictions for
merchandising teams; and
• a second wave of infection through key markets of Australia, New Zealand, China and the US, which could result in disruptions
to supply chains, retail trading conditions, consumer buying patterns and sales growth in these markets.
• flexible working arrangements for staff combined with enhanced remote working technologies;
• continued close cooperation with Synlait Milk to maintain continuity of infant milk formula supply;
• active management of supply chain routes to market (including use of air freight where appropriate);
• increased levels of safety stock to mitigate future supply chain disruption;
• agile approach to the execution of marketing programmes, adjusting where appropriate to reflect shifts in consumer buying patterns
and channel dynamics; and
• contributions to support COVID-19 vaccine research.
3
The business is currently in the process of determining targets to manage climate-related risks and opportunities, in line with the recommendations of the
TCFD framework.
36 The a2 Milk Company
Building from strength 37
CORPORATE
GOVERNANCE
CONTENTS
Our directors
Our executive committee
Governance
Remuneration
40
42
44
49
38 The a2 Milk Company
Building from strength 39
CORPORATE GOVERNANCE
OUR
DIRECTORS
David Hearn
Chair and
Non-Executive Director
Master of Arts
Director since February 2014
David has been a director of the
company since 5 February 2014, and
Chair since 30 March 2015. He is also a
member of the Nomination Committee.
David has extensive experience and skills
in executive management, sales and
marketing and strategy development in
fast moving consumer goods (FMCG)
in international markets. He has held
senior executive roles including Chief
Executive Officer or Managing Director
roles for FMCG companies including
Goodman Fielder Limited, United
Biscuits Europe and Asia, Pepsico Foods
Europe,and Del Monte UK.
Latterly, David was the CEO for the
marketing services group, Cordiant
Communications Group. In addition to
his a2MC Company directorship, David
is also a director of SafeStore Holdings
PLC, Robin Partington & Partners
Limited, Committed Capital Limited and
his own company Lovat Partners Limited.
David resides in the United Kingdom.
Julia Hoare
Deputy Chair and Independent,
Non-Executive Director
Bachelor of Commerce, FCA,
Chartered Member of the Institute
of Directors (NZ)
Director since November 2013
Julia has been a director of the company
since 19 November 2013, and Deputy
Chair since 30 March 2015. She
is also Chair of the Audit and Risk
Management Committee and a member
of the Nomination Committee.
Prior to joining the Board, Julia had
extensive chartered accounting
experience in Australia, the UK and
NZ and was a partner with PwC NZ
for 20 years. She is also a member of
the New Zealand External Reporting
Advisory Panel, a body designed to
support the standard setting process
of the New Zealand External Reporting
Board, and is the Vice President of the
New Zealand Institute of Directors.
In addition to her company directorship,
Julia is Deputy Chair of Watercare
Services Limited, and a director of
Port of Tauranga Limited, Auckland
International Airport Limited and
Meridian Energy Limited.
She is also a member of The New
Zealand Sustainable Finance Forum
Leadership Group, the aim of which is
to identify genuine, practical ways to
ensure the financial system is supporting
and not hindering the economic
transition required for New Zealand to
meet its international commitments
under the Paris Agreement Sustainable
Development Goals.
Julia resides in New Zealand.
Jesse Wu
Independent,
Non-Executive Director
Master of Business Administration
(Duke)
Director since May 2017
Jesse has been a director of the
company since 16 May 2017. He is
also a member of the Audit and Risk
Management Committee and the
Remuneration Committee.
Jesse began his career with Procter &
Gamble and PepsiCo, before joining
Johnson & Johnson’s consumer
business. He was appointed
International Vice President, Asia/Pacific
in 2003 and company Group Chair,
Global Markets in 2008. Prior to his last
executive position, he was Worldwide
Chair of the Johnson & Johnson
Consumer Group (which had annual
revenues of US$14 billion).
Jesse serves on the Board of Visitors
at Duke University’s Fuqua School of
Business. He is a two-time recipient of
the Magnolia Award from the Shanghai
Municipal Government, given in
recognition of his contributions to
Shanghai’s economic development.
In addition, Jesse serves on the board
of Aptar Group Inc, a global leader in
dispensing systems.
Over his career Jesse has managed
significant scale and complexity in the
areas of manufacturing, distribution,
sales and marketing, in both developed
and emerging markets.
Jesse resides in China.
Pip Greenwood
Independent,
Non-Executive Director
Warwick Every-Burns
Independent,
Non-Executive Director
Bachelor of Laws
(LL.B.), University of Canterbury (NZ)
Advanced Management Program
(Harvard)
Director since July 2019
Director since August 2016
Pip has been a director of the company
from 1 July 2019. She is also Chair
of the Nomination Committee and
a member of the Remuneration
Committee.
Currently Pip is also a director on the
boards of Westpac New Zealand,
Spark New Zealand and Fisher & Paykel
Healthcare. She was previously a senior
partner at law firm Russell McVeagh,
where she spent over 10 years on the
firm’s board including acting as the
firm’s board Chair and interim CEO.
Pip brings extensive commercial
and board experience to
The a2 Milk Company board. A leader
in the field of corporate law and in the
New Zealand business community, Pip
is also known for her work promoting
greater diversity in the workplace. She
is the recipient of numerous industry
awards including being named New
Zealand “Dealmaker of the Year” at
the Australasian Law Awards 2018,
an accolade she has won five times;
and she has twice been recognised
as a finalist at the Women of
Influence Awards.
Pip resides in New Zealand.
Warwick has been a director of the
company since 23 August 2016. He
is also Chair of the Remuneration
Committee and a member of the Audit
and Risk Management Committee.
Warwick has been a career Consumer
Packaged Goods (CPG) executive of
global scale. His executive roles have
included a successful career with The
Clorox Company of the USA as Senior
Vice President, International, based
in the USA and prior to that as VP
Asia Pacific. His earlier roles included
Managing Director of NationalPak
Limited (the Glad Products Company
ultimately acquired by Clorox) and a
long career with Unilever PLC where
he was based in Australia. Warwick
is a Non-Executive Director of one
of the leading international wine
companies, the ASX listed Treasury
Wine Estates Limited.
Warwick brings a combination of
international CPG Executive and non-
executive director experience in markets
of particular relevance to the company
in China, North America and Europe.
His strong skills and interest in business
development in new and emerging
markets, brand management and human
resource management are of significant
value to the company.
Warwick resides in Australia.
40 The a2 Milk Company
Building from strength 41
CORPORATE GOVERNANCE
OUR EXECUTIVE
COMMITTEE
Leadership
To enhance our organisational
alignment and enable the right
ways of working to deliver on our
strategy, we recently reorganised
our most senior executive team
to form our Executive Committee
and formed a Senior Leadership
Group which comprises the senior
management of the business.
Geoffrey Babidge
Chief Executive Officer
Bachelor of Economics
Geoffrey was appointed CEO from 9
December 2019. He was previously Managing
Director and CEO of the company from
July 2010 until July 2018; he was also an
Executive Director of the Board during this
time. Geoffrey has more than 30 years’
senior management experience working in
the Australian FMCG industry. Geoffrey has
previously held senior executive roles with a
number of companies in Australia including
Freedom Foods Group Limited, Bunge
Defiance and National Foods. Prior to these
roles he was a practising chartered accountant
and partner at Price Waterhouse.
Race Strauss
Chief Financial Officer
Fellow of CPA Australia (FCPA)
Bachelor of Business (Griffith
University, QLD)
Executive MBA (INSEAD, Singapore)
Race joined the Group in January
2020. He is responsible for the finance,
legal, IT, investor relations and strategy
functions across the group. Race is an
experienced finance executive with a
strong packaged goods background
as well as relevant international
experience, particularly in China and
other Asian regions. Race spent over
20 years at Unilever where he held a
variety of senior roles including Chief
Financial Officer of Unilever Australasia
and Vice President of Finance for
South East Asia and Australasia. More
recently Race spent seven years in Chief
Financial Officer roles with the Qantas
Group, including at Jetstar and at
Qantas Airlines.
Peter Nathan
Chief Executive Asia Pacific
Bachelor of Business (Marketing)
Peter joined the Group in 2008 and in 2010
took on the role of Chief Executive of the
Australia and New Zealand region. From
1 July 2017, Peter was appointed Chief
Executive of the Asia Pacific region. During
his time with the company, Peter has led the
successful relaunch of branded a2 Milk™ in
the Australian market from 2007 with the JV
entity, and has been instrumental in launching
and establishing the a2 Platinum® infant
formula brand in Australia and more recently
China. Peter has over 28 years’ experience
working in the FMCG industry, as evidenced
by his previous senior marketing and sales
roles for Gillette and Colgate Palmolive in
Australia and Asia, as well as his involvement
with Freedom Foods Group Limited as
General Manager. Peter is responsible for our
operations across Australia, New Zealand,
Greater China and other Asia.
Li Xiao
Chief Executive Greater China
Bachelor of Arts in Business Admin,
English (Heilongjiang University)
Master, EMBA (China Europe
International Business School)
Li Xiao joined the Group in April 2019.
Li Xiao is responsible for maximising
the significant opportunities that
the Greater China market presents
for the company, delivering against
our strategy and putting the right
capabilities in place to deliver to these
future growth opportunities.
Li Xiao has substantial experience
building successful businesses in China
across a diverse range of multinational
and local fast growth consumer driven
companies including Mars, Nike, Burger
King China, and most recently CEO and
President of Wanda Kids Group and
SVP of Wanda Group.
Shareef Khan
Chief Operations Officer
Bachelor of Science, CSCP, APICS
Shareef joined the Group in June
2012. He is directly responsible for all
supply chain, quality and operations
across the Group in each of our
geographies, from farmers through to
strategic processing and distribution
partners and ultimately distribution
to our customers. Shareef has
over 15 years’ senior management
experience as a qualified supply chain
professional. He is experienced across
a number of industries, including
fast moving consumer goods,
infant nutrition, office products
and construction.
Susan Massasso
Chief Growth and Brand Officer
Bachelor of Commerce – Accounting and
Marketing (University of Sydney)
Susan has over 20 years’ experience in the
packaged goods industry. Susan is responsible for
all activities associated with brand development
and communications, including overseeing
the marketing function, internal and external
communications, government and regulatory
affairs, and new growth engines for our business
across new products, channels and markets. Susan
originally joined the Group in September 2013 as
Group Chief Marketing Officer with leadership
of marketing and brand development across all
markets. Prior to this, Susan held several senior
leadership and commercial positions across the
Campbell Arnott’s business including Asia Pacific
Regional Marketing Director, Marketing Director
Arnott’s ANZ, General Manager Campbell’s
ANZ and Marketing Director Campbell’s ANZ. In
addition, Susan spent a number of years at Unilever
where she held a variety of marketing, consumer
insight and logistics roles. Susan attended the
University of Sydney under scholarship from
accounting firm PriceWaterhouseCoopers
where she gained undergraduate employment
throughout her degree.
Lisa Burquest
Chief People, Safety and
Sustainability Officer
Bachelor of Business, Logistics,
Materials and Supply Chain
Management
Lisa joined the Group in November
2018 as Chief People Officer.
Lisa is responsible for driving our
people strategy as well as for our
safety and sustainability functions,
leveraging her previous experience
leading the development of
safety management systems and
developing and executing integrated
sustainability programmes. Lisa has
over 26 years’ experience across a
wide breadth of human resources
roles including previous senior
positions at BHP Billiton, Origin
Energy, Jetstar and most recently
Qantas Airlines. She has experience
working across a variety of
geographies, particularly Asia, and is
very comfortable in a dynamic, fast
paced company culture.
Blake Waltrip
Chief Executive USA
BA Economics (University of California
at San Diego)
Masters of Business Administration
(Anderson Graduate School of
Management, UCLA)
Blake joined the Group in May 2016, assuming
the role of Chief Executive of the USA region.
Blake is responsible for leading our Northern
American business as well as managing our
supply chain partnerships and performance
for his region. Blake has a strong marketing
and general management skill set. Blake was
previously the CEO of Quinoa Corporation Inc,
(The Ancient Harvest Brand) based in Boulder,
Colorado. His previous roles have included
VP and CMO of the beverage division of the
Hain Celestial Group, Managing Partner of a
marketing services and strategy group, Growth
Ventures, President Americas of Lowe Alpine,
and an earlier extensive marketing career with
Nestlé USA beverage brands.
Jaron McVicar
General Counsel and
Company Secretary
Bachelor of Laws
Jaron joined the Group as General
Counsel and Company Secretary
in November 2016, having already
provided legal advice to the Group
over a number of years in his
previous role with a leading New
Zealand law firm. Prior to joining
the Group, Jaron worked in private
practice for 15 years as a corporate
and commercial lawyer, including
seven years working in London.
Jaron is a qualified solicitor in New
Zealand and England and Wales.
Jaron is responsible for the Group’s
legal function and works closely
with the Board on governance in
his capacity as Company Secretary.
42 The a2 Milk Company
Building from strength 43
CORPORATE GOVERNANCE
GOVERNANCE
We are committed to maintaining the highest standards of
corporate governance. Our corporate governance framework has
been established to ensure that directors, officers and employees
fulfil their functions responsibly, whilst protecting and enhancing
the interests of shareholders.
The roles of Chair and CEO are not exercised by the same
individual. From 1 July to 9 December 2019, the role of CEO
was held by the Managing Director, Jayne Hrdlicka, and from
9 December 2019, Geoffrey Babidge has held the role of CEO
(on an interim basis).
However, the Board did not consider the company’s Chair,
David Hearn, to be an independent director in this financial year
for the purposes of the ASX Principles. This is because of David’s
previous limited executive role, which ceased in December 2018,
under which the CEO previously had the capacity to call on David
from time to time to support the company’s business in Europe
and the UK. David also held executive options during this financial
year, which were exercised in full during the year.
Considering his limited executive role during the first half of last
financial year, and the options exercised by David during this
financial year, the Board considered it appropriate that David
should retain his non-independent status during this financial year.
David brings to the Board invaluable perspective on the
development of consumer products markets globally. The Board is
confident that he exercises an independent view and judgement
in his role as Chair and that the CEO has full executive control and
accountability in the organisation.
The Board considers there is an appropriate level of independent
view and judgement exercised by directors, including by Julia
Hoare as Deputy Chair, who is the lead independent director.
We believe that good corporate governance adds to the
performance of the company, creates shareholder value and
engenders the confidence of the investment market.
Our corporate governance framework has been developed with
regard to:
• the NZX Corporate Governance Code; and
• the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations (ASX Principles)
(third Edition). The company has updated its governance
arrangements in a number of respects during the year so
that they will be consistent with the fourth edition of the
ASX Principles, which took effect for the company from
1 July 2020.
For the financial year ended 30 June 2020 our corporate
governance framework complied with the recommendations in
the NZX Corporate Governance Code and the ASX Principles (third
Edition), except where noted below.
ASX Principles
Recommendation 2.5 of the ASX Principles states that the Chair
of the Board should be an independent director and, in particular,
should not be the same person as the CEO (recommendation 2.9
of the NZX Corporate Governance Code recommends that where
the Chair of the Board is not independent, the Chair and the CEO
should be different people).
GOVERNANCE FRAMEWORK
Independent
assurance(i)
Group
Company
Secretary(ii)
Board of
Directors
Accountability
and reporting
Delegation and
oversight
Board
committees
(ARMC, REM,
NOM)
Delegation and
oversight(iii)
Accountability
and reporting
CEO(iv)
Delegation and
oversight
Accountability
and reporting
Executive
committee(v)
(i)
Internal audit/external audit/legal and other
professional advice.
(ii) Accountability and reporting of corporate
governance and Board related matters.
(iii) Board delegates all matters except those reserved
for the Board or its committees.
(iv) Responsible for day to day operations; leads the
(v)
executive committee.
Implements strategy and business plans; directs
performance and behaviour of workforce.
OUR BOARD
Role of the Board and delegation of authority
The Board is responsible for the overall governance and operations
of the company, guiding the company’s strategic direction,
monitoring risk, and overseeing the activities of management.
All issues of substance affecting the company are considered by
the Board, with advice from external advisers as required.
The role and responsibilities of the Board are set out in the
Board Charter, available on the company’s website at
www.thea2milkcompany.com/corporate-governance.
The Board delegates certain functions to its three Committees
(Audit and Risk Management Committee, Remuneration
Committee, and Nomination Committee). The diagram on the
previous page illustrates our corporate governance framework.
Audit and Risk Management Committee (ARMC)
The principal purpose of this committee is to assist the Board in
fulfilling its corporate governance and oversight responsibilities
in relation to the Group’s risk management and internal control
systems, accounting policies and practices, internal and external
audit functions and corporate reporting.
Director independence
The Board Charter provides that the Board will, where practicable,
comprise a majority of independent directors.
Director independence is initially assessed upon each director’s
appointment and reviewed each year, or as required when a
new personal interest or conflict of interest is disclosed. For this
purpose, each director is required to bring an independent view
and judgement to the Board and to declare all actual or potential
conflicts of interest on an ongoing basis.
Any issue concerning a director’s ability to properly act as a
director must be discussed at a Board meeting as soon as
practicable, and a director may not participate in discussions or
resolutions pertaining to any matter in which the director has a
material personal interest.
In determining the independence of its directors, the Board
considers guidance for independence, set out in the ASX
Principles, the NZX Listing Rules and the NZX Corporate
Governance Code. Based on those rules and recommendations,
a director is considered to be independent by the Board if he or
she is a non-executive director and free of any interest, position,
association or relationship that could reasonably influence, or
could reasonably be perceived to influence, in a material respect
his or her capacity to bring an independent view to decisions
in relation to the company, or act in the best interests of the
company and represent the interests of the company’s security
holders generally.
Based on these measures, and the considerations discussed
on page 44 of this Annual Report the Board considers that
Julia Hoare, Warwick Every-Burns, Jesse Wu and Pip Greenwood
are independent directors.
Corporate Governance Statement
Our Corporate Governance Statement, which is current as at
30 June 2020 and approved by the Board, can be found at
www.thea2milkcompany.com/corporate-governance.
44 The a2 Milk Company
Building from strength 45
CORPORATE GOVERNANCE
GOVERNANCE
Remuneration Committee (REM)
This committee assists the Board in establishing appropriate policies for remuneration across the Group and reviews the remuneration of
the Chief Executive Officer and other senior executives as the Board may determine.
Nomination Committee (NOM)
This committee assists the Board by considering nominations to the Board to provide an appropriate mix of expertise, diversity, skills and
experience on the Board, and reports to the Board on progress of the implementation of the company’s Diversity Policy.
The Nomination Committee assisted the Board by managing the recruitment process for the recently announced appointment of
David Bortolussi as Managing Director and CEO.
These Board committees are governed by charters detailing their specific functions and responsibilities. The charter for each committee is
reviewed by the Board annually. Copies of the committee charters are available at www.thea2milkcompany.com/corporate-governance.
Board size, skills and structure
During the entire reporting period, the Board comprised four independent non-executive directors and one non-executive director. In the
period 1 July to 9 December 2019 the Managing Director and CEO (executive director) was also a member of the Board. The company’s
constitution provides for a minimum of four directors and a maximum of eight, of which at least two must be New Zealand residents to
comply with the NZX Listing Rules.
The Board has developed a board skills matrix which sets out the diversity of skills and experience that it has. The matrix, set out in its
collective form reflecting the current Board composition, is as follows:
Skills and experience
Executive leadership – experience as a senior executive in one or more substantial commercial businesses
Non-executive board membership – experience as a non-executive director of a number of listed or other
widely-held companies
Governance – experience in setting and implementing corporate governance policies, practices and standards
Consumer products and nutritional industries – experience as a senior executive in, or as a professional
advisor to, consumer products or nutritional industry businesses
E-commerce – experience as a senior executive in, or as a professional advisor to, businesses engaged in
e-commerce activities
Food safety – technical or managerial experience relating to food, food product development and
development and/or implementation and management of safe practices for the sourcing, production,
transport and distribution of perishable foods
Sustainability – experience in identifying economic, social and environmentally sustainable developments,
and setting and monitoring sustainability aspirations
International markets – experience as a senior executive in, or as a professional advisor to, businesses that
operate outside Australia and New Zealand, particularly those international markets in which the company
operates, and an understanding of how to succeed in different cultural, regulatory and business environments
Financial acumen – experience in financial accounting, taxation, external and/or internal audit and reporting
Risk management – experience in identifying and mitigating risk
Remuneration – experience in developing and/or implementing executive remuneration programmes,
including incentive-based remuneration
Board representation
(out of five directors)
100% (5)
100% (5)
100% (5)
60% (3)
80% (4)
40% (2)
60% (3)
100% (5)
20% (1)
100% (5)
80% (4)
Board committees
The Board’s three standing committees facilitate and assist the Board in fulfilling its responsibilities. Other committees may be established
from time to time with specific responsibilities as delegated by the Board. The composition of the committees as at, and throughout the
financial year ended 30 June 2020, was as follows:
Members
Independent
Non-executive
Audit and Risk Management Committee
Julia Hoare (Chair)
Warwick Every-Burns
Jesse Wu
Nomination Committee
Pip Greenwood (Chair)
Julia Hoare
David Hearn
Remuneration Committee
Warwick Every-Burns (Chair)
Pip Greenwood
Jesse Wu
46 The a2 Milk Company
Building from strength 47
CORPORATE GOVERNANCE
GOVERNANCE
REMUNERATION
Attendance at Board and committee meetings
Director attendance at Board and Committee meetings during the year ended 30 June 2020 is set out below.
Meetings of the Board
Audit and Risk
Management Committee
Remuneration
Committee
Nomination Committee
Our success depends on the quality and contribution of our
people, with their talents enabling us to achieve our short and
long-term strategic objectives.
Our remuneration philosophy for all employees and executives
aims to:
• link rewards to the creation of sustainable value for
Held
Attended
Held
Attended
Held
Attended
Held
Attended
shareholders;
David Hearn (Chair)
Julia Hoare
(Deputy Chair)
Jayne Hrdlicka1
(Managing Director
and CEO)
Warwick Every-Burns
Jesse Wu
Pip Greenwood
12
12
5
12
12
12
12
12
5
12
12
11
–
5
–
5
5
–
–
5
–
5
5
–
–
–
–
3
3
3
–
–
–
3
3
3
13
13
–
–
–
13
13
13
–
–
–
13
Held: meetings held during the period for which the person was a director or Committee member.
1 Resigned as Managing Director & CEO on 9 December 2019
Corporate governance policies
The following policies, each of which has been prepared having regard to the ASX Principles and the NZX Corporate Governance Code,
are available on the company’s website at www.thea2milkcompany.com/corporate-governance:
• Code of Ethics;
• Continuous Disclosure Policy;
• Diversity Policy. The company’s diversity policy is discussed on page 26 of this Annual Report;
• Risk Management Policy. The company’s risk management policy is discussed on pages 34 to 37 of this Annual Report;
• Securities Trading Policy;
• Shareholder Communications Policy;
• Global Whistleblower Policy;
• Global Anti-Bribery & Anti-Corruption Policy; and
• Ethical Sourcing Policy.
The Board regularly reviews the performance and effectiveness of the company’s corporate governance policies and procedures and,
if appropriate, amends those policies and procedures or adopts new policies or procedures, to uphold the integrity of the company’s
corporate governance framework.
• attract, develop and retain talented employees and executives;
• initiate and execute the company’s business plans and strategy
as endorsed by the Board;
• reward the delivery of superior performance;
• have a balanced mix of short-term and long-term remuneration
components;
• be consistent with and supportive of the company’s ethical
framework and commitment to good corporate governance;
and
• ensure that remuneration arrangements are competitive, fair,
and reflect the external labour market.
Remuneration policies and practices
The Remuneration Committee is responsible for establishing the
policies and practices of the company regarding the remuneration
of directors and other senior executives of the Group and
reviewing all components of the Group’s remuneration practices
relevant to its employees. The Remuneration Committee Charter
sets out the objectives, responsibilities and authority of the
Remuneration Committee in relation to remuneration matters. The
Charter stipulates that the Committee will make recommendations
to the Board, but all decision-making authority in relation to
remuneration remains with the Board.
The Board’s policy for remunerating the CEO and other senior
executives is to provide market-based remuneration packages
comprising a blend of fixed and variable at-risk incentive-based
remuneration with clear links between individual and company
performance, and reward. The Remuneration Committee
reviews the remuneration packages of the CEO and other senior
executives at least annually.
All employees have a fixed remuneration package. Selected senior
executives and managers also have variable remuneration in the
form of a short-term incentive (STI) as part of their remuneration
package. Certain selected senior executives and managers may
also have long-term incentives (LTI) as part of their remuneration
package.
Employees, not participating in the STI or LTI plans, may receive
a bonus of up to 5% of fixed remuneration, subject to individual
performance and the company achieving its financial objectives for
the year.
Remuneration packages for senior executives are structured so
that a significant portion of remuneration is at risk but can be
earned by the achievement of superior performance. The LTI is
designed to drive sustained performance over time and to both
attract and retain the best possible talent.
An appropriate remuneration mix is determined for each position,
taking into consideration the executive’s role and level of
responsibility.
Managing executive performance
Robust processes are in place for supporting and evaluating
the performance of the CEO and other senior executives and
managers.
The Board and CEO determine and agree annual targets and
objectives for the company based on the company’s strategic plan,
supported by a comprehensive and collaborative forecasting and
budgeting process. The CEO is accountable to the Board for the
delivery of the agreed objectives.
The objectives agreed between the Board and the CEO are
discussed and cascaded to each member of the executive team,
and captured in individual performance delivery documents
and STI agreements. The CEO uses the performance delivery
documents to facilitate individual conversations with each member
of the executive team periodically throughout the performance
period. The periodic performance discussions are documented
and form the basis of the annual performance review that each
executive undertakes with the CEO, and that the CEO undertakes
with the Board, at the end of the performance period.
The outcome of the executive’s performance over the course of
the year contributes to considerations surrounding changes to
fixed remuneration and the awarding of variable remuneration
and incentives.
For the financial year ended 30 June 2020, each member of the
executive team who was an employee for the duration of the
reporting period had at least one periodic performance discussion
documented.
Remuneration for FY20
During FY19 a revised remuneration policy for the Group was
finalised; and announced in November 2019. This new framework
delivers a high performance remuneration framework with higher
at-risk components than the previous framework, with the aim of
more closely aligning remuneration with the company’s strategic
direction, as set out below.
Fixed remuneration
Employees’ fixed remuneration is based on a matrix of an
individual’s skills and experience, their individual performance and
their current level of remuneration relative to the market. Fixed
remuneration is reviewed on an annual basis with reference to
independent external surveys, and where appropriate, is adjusted
based on consideration of individual performance and market
remuneration movement. The Remuneration Committee reviews
and approves all changes to fixed remuneration.
Variable remuneration
The STI and LTI programmes provide the potential for employees
to receive payment over and above fixed remuneration. These
programmes are discretionary, appropriate to the results delivered
by the Group and the individual performance of the employee,
based on the principle of reward for performance. A significant
portion of senior executive remuneration is at risk.
48 The a2 Milk Company
Building from strength 49
CORPORATE GOVERNANCE
REMUNERATION
The following table illustrates the relative percentages of fixed
remuneration and at risk STI and LTI for FY20.
CEO
Fixed
STI
(at target)
LTI
(face value)
29%
29%
42%
Executive Committee
30%-34% 25%-28% 38%-45%
Short-Term Incentive (STI) plan
The purpose of our STI plan is to build a results-focused
culture, whilst increasing employee engagement. STI values
and performance targets are approved by the Remuneration
Committee at the start of each financial year.
The STI is paid in the form of a cash bonus to employees based
on the achievement of the Group Performance Scorecard
and adjusted by an individual performance multiplier of 0%
to 130% – calculated based on the employee’s performance
against the achievement of personal objectives (“OKRs”).
Funding of the bonus program in FY20 was established by
aggregating, for all employees, the amount of their target incentive,
as referenced against their fixed annual remuneration and adjusted
by the performance of the Group Performance Scorecard.
STI weightings
Group performance scorecard
Financial
performance
Business
performance
Personal
OKRs
CEO and Officers
50%
50% 0-130%
Group Performance Scorecard
FY20 Group Objectives
Group Financial Performance
Business Performance
Metric
Revenue growth
Net profit after tax
1. Build China organisational capability to deliver Asia Pacific sales
Consumption market share (value)
and strategy outcomes
2. Reach meaningful scale in the USA
3. Sustainable brand leadership
4. Deliver the organisation of the future
Revenue growth – China label
Revenue growth
Prompted brand awareness – China
Prompted brand awareness – USA
People engagement (survey)
Digital transformation milestones
Weighting
50%
50%
20%
10%
10%
10%
At target
100%
Long-Term Incentive (LTI) plan
Participation in the LTI plan is by invitation only, at the sole and
absolute discretion of the Board. The LTI plan is designed to
reward performance in support of the achievement of our business
strategy; targeting profitable, long term revenue growth, which
requires appropriate investment consistent with creating long-term
shareholder value.
The new LTI structure operative in FY20 moves away from a single
hurdle which incentivises only earnings per share (EPS) growth as
we believed this could encourage underinvestment in the brand
and infrastructure and therefore limit future growth. The new
performance model now directly incentivises revenue growth but
also safeguards bottom line financial performance with an EPS
growth threshold.
The company grants performance rights (Awards) to eligible
participants under the plan, governed by specific terms and
conditions. Each Award granted represents a right to receive
one fully paid share in the company once the Award vests and is
exercised. The number of Awards and the vesting conditions for
Awards issued under the LTI plan are determined by and at the
sole discretion of the Board. No dividends are paid on performance
rights. The Board may forfeit performance rights for fraud,
dishonesty or wilful breach of duties.
Awards under the LTI plan will vest if the minimum EPS and
revenue growth thresholds have been met, while the quantum
of vesting will be determined by reference to revenue growth
achieved. A minimum level of EPS growth must be achieved while
also delivering strong revenue growth.
To the extent strong revenue growth is achieved that meets or
exceeds the vesting threshold but EPS growth has not met the
vesting threshold, no vesting will occur. Similarly, if the EPS growth
vesting threshold is achieved but the revenue growth vesting
threshold is not, no vesting will occur.
Performance rights granted in FY20
As a result of the Board undertaking a review of the company’s
remuneration practices in 2019, no performance rights were
issued for FY19. With the review completed, the company
issued performance rights in respect of FY19 to the relevant LTI
plan participants during FY20. These performance rights will be
assessed against the two-year performance period from 1 July
2019 to 30 June 2021 (rather than the three year performance
period from 1 July 2018 to 1 July 2021 that would have applied
if the Performance Rights were issued at the usual time for FY19
LTI awards, being shortly following the company’s release of its
FY18 full year results). The quantum of grants is set by reference
to a fixed percentage of each participant’s FY19 fixed annual
remuneration.
While the delay of more than one year in the issue of performance
rights under the FY19 LTI plan has resulted in a performance
period of only two years, it is considered appropriate in balancing
shareholders’ interests with offering performance-based incentives
to eligible LTI participants and avoids any perception of setting
targets with the benefit of hindsight.
To accommodate the suspension of the LTI programme in FY19,
the performance rights issued during FY20 are in two tranches,
with differing performance periods and performance hurdles as set
out below, with Tranche 1 reflecting the FY19 deferral.
The performance rights vest subject to:
• Continuing employment.
• Minimum performance hurdles of both:
–
–
A minimum diluted earnings per share (EPS) compound
annual growth rate (CAGR) increase of 15% over the
performance period (E-CAGR); and
A minimum normalised sales CAGR increase of 15% over
the performance period (S-CAGR).
• No awards will vest if E-CAGR or S-CAGR is less than 15% over
the respective performance periods.
• 50% of the awards will vest if E-CAGR and S-CAGR of 15% is
achieved, up to a maximum of 100% of the award vesting if
S-CAGR of either 22% or more, or 25% or more is achieved,
as follows:
Performance
rights
grants:
Performance
period
EPS
hurdle
Normalised sales
hurdles
Tranche 1
Tranche 2
2 years to
30 June 2021
3 years to
30 June 2022
50%
vests
85%
vests
100%
vests
15% 15% 20% 25%
15% 15% 18.5% 22%
Vesting is on a straight-line basis between each band.
Diluted earnings per share are as reported in the company’s Annual
Report in respect of that financial year.
Normalised sales in respect of a financial year, are sales plus
such additional revenue or income items less such unusual and
one-off items (in each case, as may be determined by the Board
in its absolute discretion) based on relevant financial information
reported in the company’s Annual Report in respect of that
financial year.
It is currently intended that, subject to applicable law, the company
will satisfy its obligation to allocate ordinary shares upon the
vesting of performance rights granted in FY20 (as well as all future
grants of performance rights) by instructing the trustee of the
newly established a2MC Group Employee Share Trust to purchase
shares on market so as to avoid, where possible, dilutive issues of
ordinary shares.
Further details on LTI plans can be found at Note F2 to the financial
statements.
Minimum Shareholding Requirement
Executives
With effect from 1 October 2019, a Minimum Shareholding
Requirement (MSR) Policy applies to the CEO and all of the CEO’s
direct reports (collectively, Executives). From time to time we may
also identify additional employees to whom the MSR Policy will
apply.
The purpose of this MSR Policy is to strengthen the alignment
between the interests of Executives and the interests of
shareholders and encourage a focus on building long term
shareholder value.
Executives are required to acquire and hold a minimum
shareholding equivalent to 100% of their fixed annual
remuneration comprising base salary and compulsory employer
superannuation contributions (or equivalent) before any tax or
social security deductions.
Executives are expected to achieve the MSR by the end of five
annual vesting periods for LTI grants, unless they have been
the beneficiaries of earlier option plans. In the event that an
Executive has been with the company for three or more years and
participated in these earlier option plans, the Executive will comply,
and be expected to continue to comply, with the MSR once 100%
of these options have vested.
All Executives are currently expected to achieve the MSR within the
timeframe required by the policy.
50 The a2 Milk Company
Building from strength 51
CORPORATE GOVERNANCE
REMUNERATION
Directors’ remuneration
Non-executive director’s remuneration is paid in the form of director’s fees. The fees paid to directors are structured to reflect the
respective responsibilities and workloads of their Board and Committee positions.
The annual aggregate non-executive directors’ remuneration pool, approved by shareholders at the company’s Annual Meeting of
Shareholders held on 20 November 2018, is capped at $1,365,000.
Directors’ fees structure
Base board fees:
Chair of the Board (refer below)
Deputy Chair
Non-executive director
Audit and Risk Management Committee:
Chair
Committee member
Remuneration Committee:
Chair
Committee member
Nomination Committee:
Chair
Committee member
$ annual
165,000
210,000
165,000
35,000
16,500
35,000
16,500
22,000
11,000
Prior to the company’s admission to the Official List of the ASX on 31 March 2015, 5,000,000 options over unissued ordinary shares
were issued to Lovat Partners Limited (an entity controlled by David Hearn), under the company’s LTI plan. Each option had an exercise
price of NZ$0.63. During the financial year, 3,200,000 options, that had previously vested or vested in the period, were exercised by
David in order to avoid them lapsing. The annual accounting charge to profit or loss for the options issued under the LTI plan, are
included in the schedule of non-executive directors’ remuneration as other benefits. At the time that the current level of the Chair’s fees
was set it recognised the contribution to total remuneration of this benefit at that time.
Remuneration paid to non-executive directors of the Group for the year ended 30 June 2020 was as follows:
Board fees
Committee fees
Total fees
Audit and Risk
Management
Remuneration
Nomination
Other
benefits
received
Total
remuneration
$
Company
David Hearn (Chair)1
165,000
Julia Hoare
(Deputy Chair)
Pip Greenwood
Warwick Every-Burns
Jesse Wu
Total
Subsidiary
companies
William Keane2
Total
210,000
165,000
165,000
165,000
870,000
39,880
909,880
$
–
35,000
–
16,500
16,500
68,000
$
–
–
16,500
35,000
16,500
68,000
$
–
$
$
$
165,000
17,951
182,951
11,000
256,000
22,000
203,500
–
–
216,500
198,000
–
–
–
–
256,000
203,500
216,500
198,000
33,000
1,039,000
17,951
1,056,951
–
–
–
39,880
–
39,880
68,000
68,000
33,000
1,078,880
17,951
1,096,831
1
2
Other benefits received include the annual non-cash accounting charge for options issued under the LTI plan of $17,951. The value of options exercised by
David Hearn during the year was $62,554,000.
William Keane is included as a director of The a2 Milk Company Limited (UK), he resigned as a director on 31 March 2020. No other director of a subsidiary
company was remunerated in their capacity as a director.
Remuneration of CEO – Geoffrey Babidge
Remuneration of the former CEO – Jayne Hrdlicka
Geoffrey commenced his appointment as Interim CEO on
9 December 2019. Details of the remuneration arrangements are
set out below:
Term
There is no fixed term, employment is ongoing until terminated by
either Geoffrey or the company.
Jayne was employed under an employment agreement with the
company as Managing Director and CEO from July 2018. On
9 December 2019, Jayne agreed to step down from the role, but
remained an employee of the company until 30 June 2020.
The remuneration paid to Jayne Hrdlicka for the financial year was
as follows:
Total fixed remuneration
A$1,600,000 per annum, including superannuation.
STI
A bonus in the amount of between 20% and 40% of total fixed
remuneration is payable entirely at the discretion of the Board at
the end of his tenure as CEO.
LTI
Geoffrey does not participate in the company’s LTI plans.
The remuneration paid to Geoffrey Babidge in the financial year
was as follows:
Fixed remuneration
STI paid
Total remuneration received
2020
A$
903,030
–
903,030
STI is payable at the end of Geoffrey’s tenure, based on total fixed
remuneration paid during the period of tenure.
Geoffrey’s KPI’s have been set and his award will be calculated
taking into account the achievement of these.
Fixed remuneration
Other payments
Total remuneration received
2020
A$
1,466,667
2,285,787
3,752,454
Fixed remuneration was reviewed by the Board and increased
from A$1,500,000 to A$1,600,000 per annum for FY20. Fixed
remuneration was paid for the period 1 July 2019 to 31 May
2020. Other payments included STI paid for FY20, statutory leave
entitlements and an additional cash payment.
The remaining tranche of 90,914 time-based rights, granted to
Jayne as a transition benefit on commencing employment with
the company in July 2018 were exercised during the period, and
subsequently sold.
All performance rights granted to Jayne under the LTI plan
(comprised of 164,312 performance rights granted in November
2019, and 245,787 performance rights granted previously) were
subsequently forfeited on the cessation of Jayne’s employment.
The STI paid to Jayne for FY19 was A$1,897,500.
52 The a2 Milk Company
Building from strength 53
FINANCIAL
STATEMENTS
CONTENTS
Directors’ approval of the financial statements
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated statement of cash flows
Notes to the financial statements
56
57
60
61
62
63
64
54 The a2 Milk Company
Building from strength 55
Building from strength 55
DIRECTORS’ APPROVAL OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
The directors of The a2 Milk Company Limited are pleased to present the consolidated financial statements for The a2 Milk
Company Limited (the Company) and its subsidiaries (together the Group) for the year ended 30 June 2020.
The directors are responsible for preparing and presenting financial statements in accordance with New Zealand law and
generally accepted accounting practice, which present fairly the financial position of the Group as at 30 June 2020 and
the results of its operations and cash flows for the period ended on that date.
The directors consider the financial statements of the Group to have been prepared using accounting policies which have
been consistently applied and supported by reasonable judgments and estimates and that all relevant financial reporting
and accounting standards have been followed.
The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the
determination of the financial position of the Group and facilitate compliance of the financial statements with the
Financial Markets Conduct Act 2013.
The directors consider that they have taken adequate steps to safeguard the assets of the Group, and to prevent
and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide
a reasonable assurance as to the integrity and reliability of the financial statements.
There are reasonable grounds to believe that the Company and the Group entities identified in Note E2 will be able to meet
any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between
the Company and those Group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
Signed on behalf of the Board by:
David Hearn
Chair
18 August 2020
Julia Hoare
Deputy Chair and Chair of the
Audit & Risk Management Committee
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent auditor’s report to the Shareholders of The a2 Milk
Company Limited
Opinion
We have audited the financial statements of The a2 Milk Company Limited (“the Company”) and its
subsidiaries (together “the Group”) on page 60 to 101, which comprise the consolidated statement of
financial position of the Group as at 30 June 2020, and the consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the
year then ended of the Group, and the notes to the consolidated financial statements including a
summary of significant accounting policies.
In our opinion, the consolidated financial statements on pages 60 to 101 present fairly, in all material
respects, the consolidated financial position of the Group as at 30 June 2020 and its consolidated
financial performance and cash flows for the year then ended in accordance with New Zealand
equivalents to International Financial Reporting Standards and International Financial Reporting
Standards.
This report is made solely to the Company's shareholders, as a body. Our audit has been undertaken so
that we might state to the Company's shareholders those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company's shareholders, as a body,
for our audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International
Code of Ethics for Assurance Practitioners (including International Independence Standards) (New
Zealand) issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Ernst & Young has provided market research services in relation to brand health tracking and has also
provided sustainability reporting advisory services to the group. Partners and employees of our firm
may deal with the Group on normal terms within the ordinary course of trading activities of the business
of the Group. We have no other relationship with, or interest in, the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current year. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, but we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
56 The a2 Milk Company
Building from strength 57
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 30 JUNE 2020
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
financial statements section of the audit report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.
Discounts and rebates provided to customers
Why significant
How our audit addressed the key audit matter
Revenue and associated trade receivables are
recognised net of trade discounts, volume rebates
and promotional allowances owed to customers
based on their individual contractual
arrangements. The recognition and measurement
of rebates and promotional allowances, including
the establishment of an appropriate accrual at year
end, involves judgment and estimation, particularly
relating to the expected level of rebate claims by
the customers. This was considered a key audit
matter given the value of the trade discounts,
rebates and promotional allowances provided to
customers, together with the level of judgment
involved in estimating this variable consideration
at year end.
Disclosures regarding revenue and the related
rebates, discounts and promotional allowances are
included in note B2 to the financial statements.
Our audit procedures included the following:
► Considered the appropriateness of the Group’s
revenue recognition accounting policies as
they relate to trade discounts, promotional
allowances and rebates.
► Understood the Group’s processes and
controls over the recording of trade discounts,
promotional allowances and rebates.
► Selected a sample of customer contracts and
determined whether rebates were calculated
in accordance with the agreed terms and
inquired of management as to the existence of
any non-standard agreements or side
arrangements with customers.
► Selected a sample of customer discounts and
rebates recorded and assessed whether the
timing and value of amounts recognised were
in accordance with NZ IFRS.
► Compared a sample of customer claims for
variable consideration and payments made
subsequent to year end to recorded accruals.
► Considered the year end ageing profile of
trade discounts and rebates and inquired as to
the likelihood of aged balances being settled.
Information other than the financial statements and auditor’s report
The directors of the Company are responsible for the Annual Report, which includes information other
than the consolidated financial statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained during the audit, or otherwise
appears to be materially misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the consolidated financial statements in accordance with New Zealand equivalents to International
Financial Reporting Standards and International Financial Reporting Standards, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing on behalf
of the entity the Group’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with International Standards on Auditing (New
Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
A further description of the auditor’s responsibilities for the audit of the financial statements is located
at the External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-
practitioners/auditors-responsibilities/audit-report-1/. We also provide the directors with a statement
that we have complied with relevant ethical requirements regarding independence, and to communicate
with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate threats or safeguards applied. This
description forms part of our auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Lisa Nijssen-
Smith.
Ernst & Young
Sydney
18 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
58 The a2 Milk Company
Building from strength 59
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Continuing operations
Sales
Cost of sales
Gross margin
Other revenue
Distribution expenses
Administrative expenses
Marketing expenses
Other expenses
Operating profit
Interest income
Finance costs
Net finance income
Profit before tax
Income tax expense
Profit from continuing operations
Discontinued operation
Loss from discontinued operation, net of tax
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation profit/(loss)
Items not to be reclassified to profit or loss:
Listed investment fair value loss
Total comprehensive income
Earnings per share
Basic (cents per share)
Diluted (cents per share)
Earnings per share – continuing operations
Basic (cents per share)
Diluted (cents per share)
The accompanying notes form part of these financial statements.
B1
B1
B5
B7
B3
C6
B6
B6
B6
B6
Notes
2020
$’000
2019
$’000
1,730,696
1,300,590
Year ended 30 June 2020
Balance 1 July 2019
(15,341)
59,723
20,535
Foreign
currency
translation
reserve
$’000
Fair value
revaluation
reserve
$’000
Employee
equity
settled
payments
reserve
$’000
Treasury
shares
reserve
$’000
(762,122)
968,574
435
(42,564)
(96,035)
(587,295)
713,295
160
(30,750)
(69,536)
(194,309)
(133,902)
(88,380)
547,721
6,129
(448)
5,681
553,402
(165,235)
388,167
(61,062)
418,205
4,240
(114)
4,126
422,331
(127,798)
294,533
(2,330)
385,837
(6,792)
287,741
Profit after tax for the period
–
Foreign currency translation
differences – foreign operations
2,825
–
–
Listed investment
– fair value movement
Income tax
Total comprehensive income
for the period
Transactions with owners
in their capacity as owners:
Issue of ordinary shares
Share issue costs
Treasury shares acquired
Treasury shares transferred
Share-based payments
Income tax
Total transactions with owners
–
38
(56,083)
–
2,863
(56,083)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance 30 June 2020
(12,478)
3,640
Total
reserves
$’000
Retained
earnings
$’000
Share
capital
$’000
Total
equity
$’000
64,917
578,442
144,495
787,854
–
385,837
2,825
(56,083)
38
–
–
–
(53,220)
385,837
–
–
–
–
–
385,837
2,825
(56,083)
38
332,617
–
–
–
–
–
–
–
–
–
–
(12,655)
(12,655)
436
–
–
8,331
2,188
15,477
(10,031)
11,153
–
–
–
–
–
–
–
2,509
2,509
(71)
(71)
–
–
–
–
2,438
(12,655)
–
8,331
15,477
13,591
(10,031)
22,850
964,279
146,933 1,134,062
Total
reserves
$’000
Retained
earnings
$’000
Share
capital
$’000
Total
equity
$’000
–
–
–
–
–
–
–
–
(436)
8,331
13,289
21,184
41,719
Employee
equity
settled
payments
reserve
$’000
2,863
(4,319)
Year ended 30 June 2019
Foreign
currency
translation
reserve
$’000
Fair value
revaluation
reserve
$’000
(56,083)
332,617
(62,390)
221,032
52.39
52.12
52.71
52.43
39.25
38.78
40.17
39.70
Balance 1 July 2018
(11,022)
122,113
12,351
123,442
290,701
141,566
555,709
Profit after tax for the period
–
Foreign currency translation
differences – foreign operations
(4,250)
–
–
Listed investment – fair value
movement
Income tax
Total comprehensive income
for the period
Transactions with owners in
their capacity as owners:
Issue of ordinary shares
Share issue costs
Share-based payments
Total transactions with owners
–
(69)
(62,390)
–
(4,319)
(62,390)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,184
8,184
–
287,741
(4,250)
(62,390)
(69)
–
–
–
(66,709)
287,741
–
–
–
–
–
287,741
(4,250)
(62,390)
(69)
221,032
–
–
8,184
8,184
–
–
–
–
2,970
(41)
–
2,929
2,970
(41)
8,184
11,113
Balance 30 June 2019
(15,341)
59,723
20,535
64,917
578,442
144,495
787,854
The accompanying notes form part of these financial statements.
60 The a2 Milk Company
Building from strength 61
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2020
Notes
2020
$’000
2019
$’000
Assets
Current assets
Cash and short-term deposits
Trade and other receivables
Prepayments
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Other financial assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Customer contract liabilities
Lease liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Share capital
Retained earnings
Reserves
Total equity
The accompanying notes form part of these financial statements.
D3
C1
C2
C4
D7
C5
C6
B7
C3
B2
D7
C3
D7
D5
D6
854,178
70,700
56,336
147,332
1,128,546
14,206
16,144
13,640
252,580
28,201
324,771
464,805
66,248
49,693
108,453
689,199
10,296
–
12,985
286,807
7,683
317,771
1,453,317
1,006,970
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Payment for listed investment
Net cash outflow from investing activities
Cash flows from financing activities
Payments of lease principal
Purchase of treasury shares
Proceeds from issue of equity shares
281,919
173,748
Net increase in cash and short-term deposits
Net cash (outflow)/ inflow from financing activities
Cash and short-term deposits at the beginning of the year
Effect of exchange rate changes on cash
Cash and short-term deposits at the end of the year
The accompanying notes form part of these financial statements.
3,773
3,407
16,328
305,427
392
13,436
13,828
319,255
1,134,062
146,933
964,279
22,850
1,134,062
1,431
–
43,710
218,889
227
–
227
219,116
787,854
144,495
578,442
64,917
787,854
Notes
2020
$’000
2019
$’000
1,726,947
1,304,430
(1,107,394)
(885,738)
6,135
(389)
(197,888)
427,411
(5,800)
(1,422)
(21,856)
(29,078)
(1,775)
(12,655)
2,438
(11,992)
386,341
464,805
3,032
854,178
4,277
–
(133,901)
289,068
(2,653)
(709)
(162,335)
(165,697)
–
–
2,929
2,929
126,300
340,455
(1,950)
464,805
D4
C4
C5
C6
D7
D6
D5
D3
62 The a2 Milk Company
Building from strength 63
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – BASIS OF
PREPARATION FOR THE YEAR ENDED 30 JUNE 2020
Contents
A
B
Basis of preparation
Group performance
B1 Operating segments
B2
Revenue
B3 Discontinued operation
B4
B5
B6
B7
C
C1
C2
C3
C4
C5
Expenses
Finance costs
Earnings per share
Income taxes
Operating assets and liabilities
Trade and other receivables
Inventories
Trade and other payables
Property, plant & equipment
Intangible assets
C6 Other financial assets
D
Capital and financial risk management
D1 Capital management
D2
Financial risk management
D3 Cash and short-term deposits
D4 Cash flow information
D5
Share capital
D6 Nature and purpose of reserves
D7
Leases
D8 Capital expenditure commitments
D9 Contingent liabilities
E
E1
Group structure
Consolidated entities
E2 Deed of cross guarantee
F
F1
F2
Other disclosures
Related party transactions
Share-based payments
F3 Auditor’s remuneration
F4
Subsequent events
A. Basis of preparation
The a2 Milk Company Limited (the Company) is a for-profit
entity incorporated and domiciled in New Zealand. The
consolidated financial statements of the Company for the year
ended 30 June 2020 comprise the Company and its subsidiaries
(together referred to as the Group).
The Company is registered in New Zealand under the Companies
Act 1993, and is a FMC reporting entity under the Financial Markets
Conduct Act 2013. The Company is also registered as a foreign
company in Australia under the Corporations Act 2001 (Cth,
Australia). The shares of The a2 Milk Company Limited are publicly
traded on the New Zealand Stock Exchange (NZX), the Australian
Securities Exchange (ASX) and Chi-X Australia (Chi-X). The Group’s
reporting currency is the New Zealand dollar.
The principal activity of the Company is the sale of branded products
in targeted markets made with milk from cows that produce milk
naturally containing only the A2 protein type.
The consolidated financial statements were authorised for issue
by the directors on 18 August 2020.
The consolidated financial report:
• has been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand;
• complies with the New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS);
• complies with International Financial Reporting Standards (IFRS’s)
adopted by the International Accounting Standards Board (IASB);
• is presented in New Zealand dollars, which is the Company’s
functional currency, with all values rounded off to the nearest
thousand dollars, unless otherwise stated; and
• has been prepared in accordance with the historical cost
convention and, except for listed investments, does not take
into account changing money values or fair values of assets.
Certain comparative amounts have been restated to conform with
the current period’s presentation.
Significant accounting policies have been:
• included in the relevant note to which each policy relates, other
than the accounting policy for foreign currency, set out below;
and
• except for the adoption of NZ IFRS 16: Leases noted below,
consistently applied to all periods presented in these consolidated
financial statements.
Accounting policy: Foreign currency
Transactions
Foreign currency transactions are initially translated to the respective
functional currencies of Group companies at the rate of exchange
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to the functional
currency at the exchange rate ruling at the reporting date. Foreign
exchange differences are generally recognised in profit or loss in the
statement of comprehensive income.
Foreign operations translation to reporting currency
The assets and liabilities including goodwill and fair value
adjustments arising on consolidation of foreign operations are
translated into New Zealand currency at rates of exchange
current at the reporting date, while revenues and expenses are
translated at approximately the exchange rates ruling at the date
of the transaction. Exchange differences arising on translation
are recognised in other comprehensive income and accumulated
within equity in the foreign currency translation reserve.
Judgements, estimates and assumptions
The preparation of financial statements in conformity with
NZ IFRS requires management to make judgements, estimates
and assumptions.
• This may affect the application of policies and reported amounts
of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
• Estimates and underlying assumptions are reviewed on an
ongoing basis.
• Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
• Information about significant areas of estimation uncertainty and
critical judgements in applying accounting policies that have the
most significant effect on the amount recognised in the financial
statements are described in the following notes:
– Note B7: Deferred tax assets and liabilities – Recovery of
deferred tax assets
– Note C2: Inventories – Estimation of net realisable value
– Note C5: Intangibles assets – Impairment review of goodwill
and intangibles
– Note D7: Leases – Determination of lease term
Page
65
68
70
72
72
73
73
74
78
78
79
80
81
84
85
85
89
89
90
90
91
92
92
93
94
96
97
101
101
64 The a2 Milk Company
Building from strength 65
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – BASIS OF
PREPARATION FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – BASIS OF
PREPARATION FOR THE YEAR ENDED 30 JUNE 2020
Changes in significant accounting policies
Transition
The Group has applied all of the new and revised Standards and
Interpretations issued by the New Zealand External Reporting Board
that are relevant to the Group’s operations and effective for the
current accounting period. Other than the adoption of NZ IFRS 16:
Leases, noted below, their application has not had any material
impact on the Group’s assets, profits or earnings per share for the
year ended 30 June 2020.
Adoption of NZ IFRS 16: Leases
The Group has adopted this standard from 1 July 2019, using
the modified retrospective transition method, under which
the cumulative effect of initial application, if any, is recognised
in retained earnings at 1 July 2019, with no restatement of
prior periods.
The standard introduces a single, on-balance sheet accounting
model for lessees. Right-of-use assets are recognised representing
the lessee’s right to use the underlying leased assets, together with
lease liabilities representing the obligation to make lease payments.
The Group previously recognised operating leases for office and
industrial premises, motor vehicles and equipment. On transition
to NZ IFRS 16 the Group recognises right-of-use assets and lease
liabilities on balance sheet for most of these leases, but has
elected not to recognise on balance sheet leases of low-value
assets and those leases with a remaining life on transition of
less than 12 months.
On transition lease liabilities were measured at the present value
of the remaining lease payments, discounted at the Group’s
incremental borrowing rate as at 1 July 2019. Right-of-use assets
were measured at an amount equal to the lease liability, less accrued
lease payments as at 30 June 2019.
The Group used the following practical expedients when applying
NZ IFRS 16:
• Applied the exemption not to recognise right-of-use assets
and liabilities for leases with less than 12 months of lease
term remaining.
• Used hindsight when determining the lease term if the contract
contains options to extend or terminate the lease.
Impacts on transition
The impact of transition to NZ IFRS 16 is summarised below:
$’000
Right-of-use assets recognised
Lease accruals as at 30 June 2019,
set off against right-of-use assets
Lease liabilities recognised
1 July 2019
7,869
236
(8,105)
When measuring lease liabilities, the Group discounted lease
payments using its incremental borrowing rates at 1 July 2019.
The weighted-average rate applied was 3.29%.
Adoption of NZ IFRS 16: Leases (continued)
Impacts on transition (continued)
$’000
Operating lease commitments at 30 June 2019 as disclosed in the Group’s consolidated financial statements
Discounted using incremental borrowing rates as at 1 July 2019
Recognition exemption for leases with less than 12 months of lease term at transition
Lease liabilities recognised at 1 July 2019
The Group’s lease accounting policies are included in Note D7.
New standards and interpretations not yet adopted
1 July 2019
10,145
(1,370)
(670)
8,105
There are no new standards and interpretations that are issued, but not yet effective as at 30 June 2020, that are expected to have a material
impact on the Group in current or future reporting periods.
66 The a2 Milk Company
Building from strength 67
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
B. Group performance
This section explains the results and performance of the Group
for the year, including segment information, earnings per share
and taxation.
The Group’s key performance measures are segment revenue and
segment results before interest, tax, depreciation and amortisation
(Segment EBITDA, a non-GAAP measure). Further information and
analysis of performance can be found in the CEO’s year in review
report, which forms part of this Annual Report.
B1. Operating segments
Operating segments are identified on the basis of internal reports
about components of the Group that are regularly reviewed by
the chief operating decision maker in order to allocate resources
to the segment and assess its performance.
For management purposes, the Group is organised into business
units based on geographical location along with a corporate
function, and has four reportable operating segments as follows:
• The Australia and New Zealand segment receives external
revenue from infant formula, milk and other dairy products along
with royalty and licence fee income.
• The China and Other Asia segment receives external revenue
from infant formula, milk and other dairy products.
• The USA segment receives external revenue from milk sales.
• The UK segment (discontinued operation, refer Note B3).
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance
is assessed on segment EBITDA and is measured in conformity with
the accounting policies adopted for preparing and presenting the
financial statements of the Group.
From 1 July 2019, infant formula sales previously reported in the
UK segment are allocated to the China and Other Asia segment.
Comparative information for the year ended 30 June 2019 has
been restated to reflect the change in allocation.
B1. Operating segments (continued)
2020
Consolidated sales
Other revenue
Continuing operations
Discontinued
operation
Australia and
New Zealand
$’000
China and
Other Asia
$’000
USA
$’000
Total
$’000
965,232
699,396
66,068
1,730,696
435
–
–
435
UK
$’000
1,396
–
Total
$’000
1,732,092
435
Reportable segment revenue
965,667
699,396
66,068
1,731,131
1,396
1,732,527
Reportable segment results
(Segment EBITDA)
Corporate EBITDA
Group EBITDA
465,633
224,857
(50,523)
639,967
(87,947)
552,020
(2,301)
–
(2,301)
Reconciliation to consolidated statement of comprehensive income
637,666
(87,947)
549,719
6,135
(389)
(4,393)
(165,235)
385,837
Interest income
Interest expense
Depreciation and amortisation
Income tax expense
Consolidated profit after tax
2019
Consolidated sales
Other revenue
Continuing operations
Discontinued
operation
Australia and
New Zealand
$’000
China and
Other Asia
$’000
USA
$’000
Total
$’000
842,543
423,487
34,560
1,300,590
152
8
–
160
UK
$’000
3,746
–
Total
$’000
1,304,336
160
Reportable segment revenue
842,695
423,495
34,560
1,300,750
3,746
1,304,496
Reportable segment results
(Segment EBITDA)
Corporate EBITDA
Group EBITDA
388,234
134,906
(43,980)
479,160
(58,918)
420,242
(6,632)
–
(6,632)
Reconciliation to consolidated statement of comprehensive income
Interest income
Depreciation and amortisation
Income tax expense
Consolidated profit after tax
472,528
(58,918)
413,610
4,277
(2,176)
(127,970)
287,741
One customer within the Australia and New Zealand segment contributed revenue in excess of 10% of Group revenue
of $375,812,000 (2019: $259,973,000).
68 The a2 Milk Company
Building from strength 69
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
B2. Revenue (continued)
Contract balances
The following table provides information about receivables and
contract liabilities from contracts with customers.
Receivables
Customer contract liabilities
Note
C1
2020
$’000
63,595
(3,773)
2019
$’000
58,013
(1,431)
Customer contract liabilities are payments received in advance from
customers. The amount of $1,431,000 recognised in customer
contract liabilities at 30 June 2019 was recognised as revenue
in the year ended 30 June 2020.
Remaining performance obligations at 30 June 2020 have
an original expected duration of one year or less. No further
information on these performance obligations is provided, as
allowed by NZ IFRS 15.
Recognition and measurement
Sales of products
The Group sells branded milk products made with milk from cows
that are specially selected to produce milk that naturally contains
only the A2 protein type, to wholesale customers.
A sale is recognised when control of the product has transferred,
being when the product is delivered to the customer and there is
no unfulfilled obligation that could affect the customer’s acceptance
of the product. Delivery occurs when the product has been shipped
to the location specified by the customer and the customer accepts
the product.
Revenue from sales is recognised based on arrangements as agreed
with the customer. These arrangements are applied on an order
by order basis and do not commit the customers to purchase a
specified quantity or type of product; nor do they commit the
Group to deliver a specified quantity or type of product. The
arrangements set out the terms and conditions that apply to the
parties each time an order is placed by a customer and accepted
by the Group, creating a sale contract for that order. The terms
and conditions cover, as appropriate to the customer, pricing,
settlement of liabilities, return policies and any other negotiated
performance obligations.
Revenue is recognised after off-setting items of variable
consideration such as rebates agreed with customers.
Settlement terms range from cash-on-delivery or prepaid terms
to various credit terms not exceeding 60 days from end of month.
These terms reflect assessment of customer credit risk and
industry practice.
Customer contract liabilities refer to payments in advance received
from customers, with subsequent delivery to customer, and
recognition of revenue, generally occurring within a week of
receipt of the payment.
For credit customers a receivable is recognised when the products
are delivered, being the point in time that the consideration
is unconditional because only the passage of time is required
before payment is due.
Interest revenue
Interest revenue is accrued on a time basis, by reference to the
principal and the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s
net carrying amount.
B1. Operating segments (continued)
Other segment information
2020
Additions to non-current assets
Depreciation and amortisation
2019
Additions to non-current assets
Depreciation and amortisation
Australia and
New Zealand
$’000
China and
Other Asia
$’000
6,324
2,081
2,118
1,312
6,552
1,002
178
218
USA
$’000
366
225
38
91
UK
$’000
Corporate
$’000
–
36
36
25
4,333
1,049
992
530
Total
$’000
17,575
4,393
3,362
2,176
The majority of the Group’s revenue generated from customers, and the majority of its non-current assets (other than financial instruments
and deferred tax assets), are sourced and located outside of its country of domicile (New Zealand).
B2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical location (reportable segments) and major product types.
2020
Infant formula:
China label
English and other labels(1)
Liquid milk
Other
2019
Infant formula:
China label
English and other labels (1)
Liquid milk
Other
Continuing operations
Discontinued
operation
Australia and
New Zealand
$’000
China and
Other Asia
$’000
USA
$’000
Total
$’000
UK
$’000
Total
$’000
–
745,055
152,539
68,073
337,715
341,120
3,400
17,161
–
–
337,715
1,086,175
–
–
337,715
1,086,175
66,068
222,007
1,396
223,403
–
85,234
–
85,234
965,667
699,396
66,068
1,731,131
1,396
1,732,527
Continuing operations
Discontinued
operation
Australia and
New Zealand
$’000
China and
Other Asia
$’000
USA
$’000
Total
$’000
–
652,864
133,704
56,127
167,842
243,110
2,906
9,637
–
–
34,560
–
167,842
895,974
171,170
65,764
UK
$’000
–
–
3,746
–
Total
$’000
167,842
895,974
174,916
65,764
842,695
423,495
34,560
1,300,750
3,746
1,304,496
(1) Revenue is allocated based on management responsibility and usually reflects the geographical location of the Group’s wholesale customers. It is understood
that a significant portion of the infant formula sales to customers in the Australia and New Zealand segment are ultimately consumed in China.
70 The a2 Milk Company
Building from strength 71
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
B3. Discontinued operation
B5. Finance costs
On 20 August 2019, the Board announced its decision to withdraw from fresh milk operations in the UK (reported in the UK segment) to
focus instead on strengthening the Group’s position in core regions, which offer more significant scale potential and a platform for further
new product development.
All the UK fresh milk trading operations ceased in the period to 31 December 2019.
Results
Revenue
Expenses
Results from operating activities
Net finance income
Income tax
Results from operating activities, net of tax
Earnings per share
Basic (cents per share)
Diluted (cents per share)
Cash flow
Operating
Investing
Net cash outflow for the period
B4. Expenses
Profit before income tax includes the following significant items:
Salary and wage costs
Equity settled share-based payments (refer note F2)
Directors’ fees and expenses
Audit fees (refer note F3)
Bad and doubtful debts
Professional service fees
Depreciation and amortisation
Net foreign exchange loss/ (gain)
Impairment of intangible assets
Carbon credits – emissions offset
2020
$’000
1,396
(3,730)
(2,334)
4
–
(2,330)
(0.32)
(0.31)
(4,452)
–
(4,452)
2020
$’000
69,830
8,331
1,079
970
79
29,070
4,393
1,434
–
4,876
2019
$’000
3,746
(10,399)
(6,653)
33
(172)
(6,792)
(0.93)
(0.92)
(6,826)
(36)
(6,862)
2019
$’000
47,977
8,184
1,012
701
(17)
27,628
2,176
(198)
2,059
–
Interest expense – lease liabilities
Finance costs
B6. Earnings per share (EPS)
Profit/(loss) attributable to members of the Company:
Continuing operations
Discontinued operation
Profit attributable to members of the Company used in calculating basic and diluted EPS ($'000)
2020
$’000
389
59
448
2019
$’000
–
114
114
2020
2019
388,167
(2,330)
385,837
294,533
(6,792)
287,741
Weighted average number of ordinary shares ('000) for basic EPS
736,467
733,145
Effect of dilution due to partly paid ordinary shares, share options and time-based
and performance rights ('000)
Weighted average number of ordinary shares ('000) for diluted EPS
Earnings per share
Basic EPS (cents)
Diluted EPS (cents)
Earnings per share – continuing operations
Basic EPS (cents)
Diluted EPS (cents)
Recognition and measurement
3,879
740,346
8,772
741,917
52.39
52.12
52.71
52.43
39.25
38.78
40.17
39.70
Basic EPS is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity
(other than dividends), divided by the weighted average number of ordinary shares outstanding during the financial year.
Diluted EPS adjusts basic EPS for the dilutive effect of employee share rights and options that may be converted into ordinary
shares in the Company.
72 The a2 Milk Company
Building from strength 73
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
B7. Income taxes
Income tax recognised in profit or loss
Current tax
Deferred tax origination and reversal of temporary differences
Adjustments in respect of current income tax of previous year
Total tax expense
The prima facie income tax on pre-tax accounting profit from operations reconciles to:
Profit from continuing operations
Loss from discontinued operation
Accounting profit before income tax
Income tax expense calculated at 28% (2019: 28%)
Difference in income tax rates: UK (19%; 2019: 19%), Australia (30%, 2019: 30%),
USA (24%; 2019: 24%), and China (25%, 2019: 25%)
Non-deductible expenses
Prior period adjustment to tax expense
Deferred tax impact to tax expense for permanent establishments
Unutilised foreign tax credits forfeited
Income tax recognised in equity
Deferred tax asset not recognised
Total tax expense
Income tax expense – continuing operations
Income tax attributable to discontinued operation
Income tax recognised directly in equity
Current tax
Deferred tax
Tax (benefit)/expense in equity
2020
$’000
2019
$’000
183,171
(11,277)
(6,659)
165,235
553,402
(2,330)
551,072
154,300
7,263
1,500
(5,975)
(339)
294
5,554
2,638
133,985
(2,891)
(3,124)
127,970
422,331
(6,620)
415,711
116,399
6,430
5,680
(4,243)
114
1,429
–
2,161
165,235
127,970
165,235
127,798
–
172
165,235
127,970
(6,274)
(9,241)
(15,515)
–
69
69
B7. Income taxes (continued)
Deferred tax balances
Deferred tax assets are only recognised in the financial statements to the extent that it is probable that sufficient taxable profits will be
available, against which the tax asset can be utilised.
2020
Gross deferred tax assets
Patents
Accrued expenses
Tax losses
Employee share scheme
Other
Gross deferred tax liabilities
Property, plant and equipment
Net deferred tax
Charge to profit or loss
Charge to other comprehensive income
2019
Gross deferred tax assets
Patents
Accrued expenses
Tax losses
Other
Gross deferred tax liabilities
Property, plant and equipment
Foreign exchange (gains)/losses
Net deferred tax
Charge to profit or loss
Charge to other comprehensive income
Opening
balance
$’000
Charge to
comprehensive
income
$’000
Charge to
equity
$’000
Closing
balance
$’000
72
7,562
284
–
189
8,107
(424)
7,683
(1)
9,047
21
901
1,298
11,266
49
11,315
11,277
38
11,315
Opening
balance
$’000
Charge to
comprehensive
income
$’000
99
3,937
471
985
5,492
(530)
(101)
(631)
4,861
(27)
3,625
(187)
(796)
2,615
106
101
207
2,822
2,891
(69)
2,822
–
–
–
9,203
–
9,203
–
9,203
71
16,609
305
10,104
1,487
28,576
(375)
28,201
Closing
balance
$’000
72
7,562
284
189
8,107
(424)
–
(424)
7,683
74 The a2 Milk Company
Building from strength 75
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP
PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020
B7. Income taxes (continued)
Deferred tax balances (continued)
Net deferred tax balances recognised in the financial statements
Net deferred tax assets
Net deferred tax liabilities
Net deferred tax
Tax losses
The Group has the following estimated gross tax losses at balance date not recognised:
United Kingdom
United States of America
Australia
Total
2020
$’000
28,201
–
28,201
2020
$’000
–
42,517
2,493
45,010
2019
$’000
7,683
–
7,683
2019
$’000
52,620
31,582
273
84,475
Following discontinuation of the UK liquid milk operations, the UK tax losses are no longer available for use.
Imputation and franking credits
The Company is a New Zealand company which has elected to maintain an Australian franking credit account. The imputation credit and
franking credit balances represent the sum of the imputation credit and franking credit account balances of all Group companies stated
on an accrual basis. The ability to use the imputation and franking credits is dependent upon the ability of Group companies to declare
dividends. The franking credit account balance is stated in NZD, with the balance available for distribution dependant on future exchange
rate movements.
Imputation and franking credits available within the Group, and ultimately available to the shareholders of the Company:
Imputation credits
Franking credits
2020
$’000
43,987
406,265
2019
$’000
44,190
251,973
B7. Income taxes (continued)
Recognition and measurement
Income tax expense represents the sum of the tax currently payable
and deferred tax.
Current and deferred tax are recognised as an expense or income in
profit or loss, except when they relate to items credited or debited
in other comprehensive income or equity, in which case that tax is
recognised in other comprehensive income or equity respectively;
or where they arise from the initial accounting for a business
combination.
The tax currently payable is based on taxable profit for the year. The
Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date,
and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised on differences between the carrying
amount of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all
taxable temporary differences, and deferred tax assets are generally
recognised for all deductible temporary differences to the extent
that it is probable that taxable profits will be available in the future
against which those deductible temporary differences can be utilised.
Key estimates and judgements
Recovery of deferred tax assets
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply in the period in which the liability is settled
or the asset realised, based on tax rates (and tax laws) that have
been enacted or substantively enacted by the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the
tax consequences that would follow from the manner in which the
Group expects, at the reporting date, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
The carrying amount of deferred tax assets is reviewed at each
reporting date for recoverability. Likewise, unrecognised tax assets
(not booked to balance sheet) are re-assessed at each reporting date,
and recognised, to the extent that future taxable profits are deemed
likely to allow the asset to be recovered.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences, to the extent that
it is probable that future taxable profits will be available against which they can be used.
Judgement is required when deferred tax assets are reviewed at each reporting date. Deferred tax assets may be reduced to the extent
that it is no longer probable that future taxable profits will be available.
Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. Changes in
expectations for the future performance of the business may impact the amount of deferred tax assets recoverable and recognised
on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised.
76 The a2 Milk Company
Building from strength 77
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
C. Operating assets and liabilities
This section provides details of the Group’s operating assets, and liabilities incurred as a result of trading activities, used to generate
the Group’s performance.
C1. Trade and other receivables
Trade receivables from contracts with customers
Allowance for impairment
Other receivables
2020
$’000
63,595
(99)
7,204
70,700
2019
$’000
58,013
(20)
8,255
66,248
The Group’s exposure to credit risks and impairment losses related to trade and other receivables are disclosed in Note D2: Financial
risk management.
Recognition and measurement
Trade receivables from contracts with customers are recognised initially at their transaction price. Other receivables are recognised initially
at fair value. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method, less any lifetime
expected credit losses.
C2. Inventories
Raw materials
Finished goods
Goods in transit
2020
$’000
10,306
68,457
68,569
2019
$’000
9,933
59,556
38,964
Total inventories at the lower of cost and net realisable value
147,332
108,453
The inventory balance reflects our growing business, as well as the decision to carry a higher level of inventory as a safety buffer given
the uncertainties of COVID-19.
During the year, $3,773,000 (2019: $1,550,000) was recognised as an expense in cost of sales for inventories written down to net
realisable value.
Recognition and measurement
Inventories are valued at the lower of cost and net realisable value. Cost is calculated using standard costing or weighted average methods.
Standard costs are regularly reviewed and, if necessary, revised to reflect actual costs.
Net realisable value represents the estimated selling price in the ordinary course of business, less estimated costs of completion and
the estimated costs necessary to make the sale.
Key estimates and judgements
Recovery of inventory
Estimation of net realisable value includes assessment of expected future turnover of inventory held for sale and the expected future
selling price of such inventory. Changes in trading and economic conditions, and changes in country specific regulations, may impact these
estimations in future periods.
C3. Trade and other payables
Trade and other payables – current
Trade payables
Rebates and promotional allowances
Accrued charges
Employee entitlements
Trade and other payables – non-current
Employee entitlements
Recognition and measurement
2020
$’000
129,951
34,420
91,632
25,916
2019
$’000
84,152
13,500
59,177
16,919
281,919
173,748
2020
$’000
392
2019
$’000
227
Trade payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest rate method.
They represent liabilities recognised when the Group becomes obligated to make future payments resulting from the purchase of goods
and services. The amounts are unsecured.
Accrued charges represent amounts payable for supplies and services received but not invoiced at the reporting date.
Employee entitlements
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, and long service leave when it is probable
that settlement will be required and they are capable of being measured reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement.
Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value
of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.
78 The a2 Milk Company
Building from strength 79
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
C4. Property, plant and equipment
C5. Intangible assets
2020
Carrying amount 1 July 2019
Additions
Disposals
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2020
Cost
Accumulated depreciation
Carrying amount 30 June 2020
2019
Carrying amount 1 July 2018
Additions
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2019
Cost
Accumulated depreciation
Carrying amount 30 June 2019
Recognition and measurement
Office and
computer
$’000
Furniture and
fittings
$’000
Leasehold
improvements
$’000
Plant and
equipment
$’000
330
1,013
–
(343)
4
1,004
1,724
(720)
1,004
250
131
–
(74)
6
313
538
(225)
313
496
3,443
(143)
(320)
31
3,507
4,347
(840)
3,507
9,220
1,213
–
(1,227)
176
9,382
17,235
(7,853)
9,382
Office and
computer
$’000
Furniture and
fittings
$’000
Leasehold
improvements
$’000
Plant and
equipment
$’000
322
213
(197)
(8)
330
1,166
(836)
330
254
50
(49)
(5)
250
435
(185)
250
803
112
(400)
(19)
496
1,397
(901)
496
8,322
2,278
(1,104)
(276)
9,220
15,811
(6,591)
9,220
Total
$’000
10,296
5,800
(143)
(1,964)
217
14,206
23,844
(9,638)
14,206
Total
$’000
9,701
2,653
(1,750)
(308)
10,296
18,809
(8,513)
10,296
All items of property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is
directly attributable to the acquisition of the item.
Depreciation is calculated on a straight line basis so as to write off the net cost of the asset over its expected useful life to its estimated
residual value. The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the effect of any
changes in estimate accounted for on a prospective basis. The following estimated useful lives are used in the calculation of depreciation:
Office and computer equipment
Furniture and fittings
Leasehold improvements
Plant and equipment
2–10 years
5–10 years
2–12 years
10–15 years
The carrying value of an item of property, plant and equipment is derecognised either upon disposal or when no future economic benefits
are expected from the asset. Any gain or loss arising from the derecognition (representing the difference between the net disposal proceeds
and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.
2020
Carrying amount 1 July 2019
Additions
Disposals
Amortisation
Net foreign currency exchange
differences
Carrying amount 30 June 2020
Cost
Accumulated amortisation
and impairment
Carrying amount 30 June 2020
2019
Carrying amount 1 July 2018
Additions
Transfers
Amortisation
Impairment
Net foreign currency
exchange differences
Carrying amount 30 June 2019
Cost
Accumulated amortisation
and impairment
Carrying amount 30 June 2019
Patents
$’000
Trademarks
$’000
Software
$’000
Project
development
$’000
835
52
–
(72)
–
815
1,346
(531)
815
3,187
245
–
–
–
3,432
3,432
–
3,432
341
181
(100)
(111)
–
311
1,890
(1,579)
311
665
944
(665)
–
13
957
970
(13)
957
Patents
$’000
Trademarks
$’000
Software
$’000
Project
development
$’000
949
155
–
(269)
–
–
835
1,294
(459)
835
2,811
503
–
–
(127)
–
3,187
3,187
–
3,187
320
50
137
(157)
–
(9)
341
803
1
(137)
–
–
(2)
665
1,954
4,284
(1,613)
341
(3,619)
665
Goodwill
$’000
7,957
–
–
–
168
8,125
8,125
–
8,125
Goodwill
$’000
10,209
–
–
–
Total
$’000
12,985
1,422
(765)
(183)
181
13,640
15,763
(2,123)
13,640
Total
$’000
15,092
709
–
(426)
(1,932)
(2,059)
(320)
7,957
7,957
–
7,957
(331)
12,985
18,676
(5,691)
12,985
Trademarks are allocated to the following cash-generating units (CGUs) for the purpose of impairment testing: Australia and New Zealand
$323,000 (2019:$268,000); China and Other Asia $2,984,000 (2019: $2,817,000); USA $125,000 (2019: $102,000).
During the year the total value of research and development costs expensed was $4,332,000 (2019: $3,392,000).
Recognition and measurement
The costs of intangible assets other than goodwill are capitalised where there is sufficient evidence to support the probability of the
expenditure generating future economic benefits for the Group.
Patents
Patents are considered to have a finite life and are amortised on a straight line basis over the lifetime of the patent.
Trademarks
Trademarks are not subject to amortisation as they are considered to have an indefinite life and are tested for impairment annually and
whenever there is an indication that the asset may be impaired.
Software
Software is amortised on a straight line basis over 2 to 3 years.
80 The a2 Milk Company
Building from strength 81
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
C5. Intangible assets (continued)
C5. Intangible assets (continued)
Recognition and measurement (continued)
Recognition and measurement
Annual impairment testing as at 30 June 2020
Project development costs
Impairment testing of non-financial assets
Project development expenditure is capitalised only when the
Group can demonstrate: the technical feasibility of completing
the intangible asset so that it can be available for use or sale; the
potential for the asset to generate future economic benefits on
completion; and the ability to measure reliably the expenditure
attributable to the asset during its development. Amortisation
commences when the asset is available for use.
Project development costs are amortised over a maximum useful
life of 5 years.
Goodwill
Assets that have an indefinite useful life, such as goodwill
and trademarks, are not amortised but are tested annually for
impairment. Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is
the higher of the asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units).
Goodwill is recognised on business acquisitions, representing the
excess of the cost of acquisition over the Group’s interest in the net
fair value of the identifiable assets, liabilities and contingent liabilities
of the business recognised at the date of acquisition.
Impairment losses are recognised in the statement of comprehensive
income. They are allocated first to reduce the carrying amount of
any goodwill allocated to the CGU, and then to reduce the carrying
amount of the other assets in the CGU on a pro-rata basis.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment
losses. For the purposes of impairment testing, goodwill acquired in
a business combination is, from the date of acquisition, allocated to
the Group’s cash-generating units that are expected to benefit from
the synergies of the combination.
Impairment testing for cash-generating units (CGUs)
containing goodwill
Goodwill allocation
For the purposes of impairment testing, goodwill is allocated to the
Australia and New Zealand CGU, being the lowest level within the
Group at which goodwill is monitored by internal management.
The movement in Australia and New Zealand goodwill is attributable
to foreign exchange movements.
An impairment loss in respect of goodwill is not reversed.
Non-financial assets other than goodwill that have been impaired
are reviewed for possible reversal at each reporting date. An
impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Key estimates and judgements
Goodwill and intangibles
Judgements are made with respect to identifying and valuing
intangible assets on acquisitions of new businesses.
The Group assesses whether goodwill and intangibles with
indefinite useful lives are impaired at least annually. These
calculations involve judgements to estimate the recoverable
amount of the cash-generating units to which the goodwill and
intangibles with indefinite useful lives are allocated.
The recoverable amount of goodwill and trademarks has been
determined on a value in use basis using a discounted cash flow
approach, and projections based on financial budgets approved by
the Board, and 4-year forward plans supplied by management.
Key assumptions
• Discount rates (pre-tax): 6.8% to 7.0% (2019: 7.4% to 9%)
• Terminal growth rate: 2.0%. (2019: 2.0%)
Sensitivity to change in assumptions
The calculation of value in use is most sensitive to the following
assumptions:
• Gross margins
• Discount rates
• Revenue growth during the forecast period
• Growth rates used to extrapolate cash flows beyond the
forecast period (terminal growth rate)
Gross margins – Gross margins are based on budgeted margins for
FY21, and estimates for future years, adjusted where appropriate to
account for expected future trading conditions. Consideration has
been given to the growth profile of each CGU when forecasting
future margin returns.
Discount rates – Discount rates represent the risks specific to each
CGU, taking into consideration the time value of money and
individual risks of the underlying cash flows expected from the
CGU being assessed. CGU specific risk is incorporated by applying
individual beta factors. The discount rate calculation is based on
the specific circumstances of the Group and its CGUs and is derived
from its weighted average cost of capital (WACC). The WACC
considers both debt and equity. The cost of equity is derived from
the expected return on investment by the Group’s investors. Noting
that the Group had no debt at 30 June 2020, the cost of debt is
based on the capital structure that could be expected from a similar
market participant.
Revenue growth – Revenue projections have been constructed with
reference to the FY21 budget and 4-year forward looking plans,
and adjusted for recent performance trends across the regions
(where necessary).
Terminal growth rate – A terminal growth rate of 2.0% has been
used for future cash flow growth beyond the 4-year forecast period.
The terminal value (being the total value of expected cash flows
beyond the forecast period) is discounted to present values using the
discount rate specific to each CGU.
As at 30 June 2020, the recoverable amount of the Group’s CGUs
exceeds their carrying amounts. The directors believe that no
reasonably possible change in any of the key assumptions would
cause the recoverable amount of these CGUs to be less than their
carrying values. Based on this assessment, no impairment write
downs are considered necessary.
82 The a2 Milk Company
Building from strength 83
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – OPERATING ASSETS
AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
C6. Other financial assets
2020
$’000
2019
$’000
Listed investment at fair value
252,580
286,807
The listed investment is in Synlait Milk Limited (Synlait). Synlait
is a dairy processing company (listed on the New Zealand Stock
Exchange and Australian Securities Exchange) with which the Group
has an ongoing Nutritional Powders Manufacturing and Supply
Agreement. No dividends were received from this investment during
the year (2019: $nil)
In March 2020 the Company made a further investment in Synlait,
acquiring 4,400,000 shares for $21,856,000, increasing its total
holding in Synlait to 19.84% (2019: 17.39%).
A fair value loss of $56,083,000 (2019: loss $62,390,000)
was recognised for the year.
Recognition and measurement
This listed investment is a long-term investment classified as
a financial asset measured at fair value through other comprehensive
income. The Group does not control or have significant influence
over the investee.
Unrealised gains or losses arising from changes in fair value are
recognised through other comprehensive income in the Fair Value
Revaluation Reserve within equity.
D. Capital and financial risk management
This section outlines how the Group manages its capital structure
and its exposure to financial risk, and provides details of its balance
sheet liquidity and access to financing facilities.
D1. Capital management
The Group’s objective when managing its capital is to safeguard
the Group’s ability to continue as a going concern and to continue
to generate value for stakeholders. The Group is not subject to
externally imposed capital requirements, and currently has no debt.
The Board and management continue to evaluate a broad range
of investment options designed to support the Company’s future
growth aspirations and, as a consequence, do not anticipate paying
dividends in the near-term.
The Group’s capital structure may be modified by payment of
dividends to shareholders, returning capital to shareholders, or
issuing new shares.
The Company’s Board of Directors reviews the capital structure at
least twice a year before announcing results.
D2. Financial risk management
Financial risk management objectives
Exposure to credit risk, market risk (including currency risk,
commodity price risk and equity price risk), and liquidity risk arises in
the normal course of the Group’s business.
The Group’s financial risk management processes and procedures
seek to minimise the potential adverse impacts that may arise from
the unpredictability of financial markets.
The Group’s corporate finance function provides treasury services
to the business, co-ordinates access to domestic and international
financial markets, and monitors and manages liquidity and the
financial risks relating to the operations of the Group through
internal risk reports which analyse exposures by degree and
magnitude of these risks.
Policies and procedures are reviewed periodically to reflect both
changes in market conditions and changes in the nature and volume
of Group activities.
The Group does not enter into or trade financial instruments,
including derivative financial instruments, for speculative or hedging
purposes. Specific risk management objectives and policies are set
out below.
The Group uses various methods to measure different types of risk
exposures. These methods include ageing analysis for credit risk, and
sensitivity analysis in the case of foreign exchange risks and equity
price risk.
Credit risk management
Credit risk is the risk of financial loss to the Group if a customer
or the counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s
receivables from customers.
Maximum exposures to credit
risk at balance date:
Cash and short-term deposits
(counterparty risk)
Trade receivables
(customer credit risk)
2020
$’000
2019
$’000
854,178
464,805
63,595
917,773
58,013
522,818
84 The a2 Milk Company
Building from strength 85
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
D2. Financial risk management (continued)
Counterparty risk
D2. Financial risk management (continued)
Market risk
At balance date, the Group’s bank accounts were held with banks with acceptable credit ratings determined by recognised credit agencies,
including National Australia Bank Limited, Bank of New Zealand Limited, HSBC Bank, JP Morgan Chase Bank, and Lloyds Bank. The Group
does not have any other concentrations of counterparty credit risk.
Customer credit risk
The Group’s exposure to customer credit risk is influenced mainly by the individual characteristics of each customer. The majority of sales are
to major retailers and other significant customers with established credit worthiness and minimum levels of default. Other sales are made
cash on delivery.
New customers are analysed individually for creditworthiness, taking into account credit ratings where available, financial position, previous
trading experience and other factors.
In monitoring customer credit risk, customers are assessed individually by their debtor ageing profile. Monitoring of receivable balances
on an ongoing basis minimises the exposure to bad debts. Historically, bad debt write-offs have been negligible.
There are significant concentrations of business within the Group. In 2020 24% of sales with credit terms were to three customers.
(2019: 37% of sales to three customers). There is no history of default for these customers.
The provision for impairment is recognised based on an assessment of lifetime expected credit loss.
Ageing of trade receivables at the reporting date:
Not past due
Past due up to 90 days
Past due 91 to 180 days
Past due 181 days to one year
More than one year
Gross
2020
$’000
58,424
3,729
1,388
54
–
63,595
Impairment
2020
$’000
–
(45)
(54)
–
(99)
Gross
2019
$’000
50,153
7,860
–
–
–
Impairment
2019
$’000
–
(20)
–
–
–
58,013
(20)
The average credit period on sales is 16 days (2019: 22 days). No interest is charged on trade receivables outstanding.
Movement in impairment allowance for expected credit loss
Balance at beginning of year
Amount charged to the statement of comprehensive income
Provisions reversed
Net foreign currency exchange differences
2020
$’000
20
79
–
–
99
2019
$’000
37
(17)
–
–
20
Market risk is the risk that changes in market prices will affect the Group’s income or the value of its holdings in financial instruments.
The Group’s activities expose it primarily to the financial risks of change in foreign currency exchange rates to the NZ dollar. Prices charged
by manufacturers (including pricing of whole and skim milk powders) are subject to movements in commodity milk pricing. The Group’s
holding of a listed investment also exposes it to equity price risk.
Market risk exposures are monitored by management on an ongoing basis and there has been no change during the year to the Group’s
exposure to market risks or the way it manages and measures risk.
Foreign currency risk management
The Group’s exposure to foreign currency risk arises principally from its operations in Australia, the US, and China; and the resultant
movements in the currencies of those countries against the NZ dollar. The Group does not hedge this risk, but may transfer cash balances
from time-to-time between currencies to reduce exposure or to match underlying liabilities. As at 30 June 2020 approximately 80% of
the Group’s cash and short-term deposits were held in NZ dollars to assist in managing risk associated with NZ dollar liabilities.
Expressed in NZ dollars, the table below indicates exposure and sensitivity to movements in exchange rates on the profit or loss of the
Group based on closing exchange rates as at 30 June, applied to the Group’s financial assets/ (liabilities) at 30 June. Exchange rates and
assets and liabilities held in foreign currencies will fluctuate over the course of normal operations.
The analysis is performed consistently from year to year.
2020
Movement on exchange rate
AUS Dollar
US Dollar
Chinese Yuan Renminbi
2019
Movement on exchange rate
AUS Dollar
US Dollar
Chinese Yuan Renminbi
Net exposure on
reporting date
Impact on pre-tax
profit or (loss)
$’000
–
361
31,310
(16,503)
$’000
+10%
40
3,478
(1,834)
Net exposure on
reporting date
Impact on pre-tax
profit or (loss)
$’000
–
8,981
(16,964)
79
$’000
+10%
998
(1,886)
9
$’000
–10%
(33)
(2,847)
1,500
$’000
–10%
(816)
1,541
(7)
As the foreign currency denominated monetary financial instruments of the Group consist only of cash, and trade and other receivables
and payables, foreign exchange movements do not have any impact on equity, other than the above-mentioned impact on profit or loss.
Exchange rates
The following significant exchange rates applied during the year:
AUS Dollar
US Dollar
Chinese Yuan Renminbi
Average rate
Reporting date spot rate
2020
0.9480
0.6350
4.4772
2019
0.9401
0.6724
4.5911
2020
0.9355
0.6444
4.5612
2019
0.9552
0.6679
4.5944
86 The a2 Milk Company
Building from strength 87
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
Fair values
Fair value hierarchy
Financial instruments carried at fair value are classified by valuation
method based on the following hierarchy:
• Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities
• Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
• Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs)
The listed investment, classified as a financial asset measured
at fair value through other comprehensive income, is the only
financial instrument carried by the Group at fair value, with a
Level 1 valuation method applied. Carrying amount (equaling fair
value) is applied consistently in the current and prior year to assets
and liabilities not recognised in the statement of financial position
at fair value.
The following methods and assumptions are used in estimating
the fair values of financial instruments:
•
listed investment – closing share price as at 30 June 2020
on the New Zealand Stock Exchange; and
• cash and short-term deposits, trade and other receivables
and payables – carrying amount equals fair value
D2. Financial risk management (continued)
Equity price risk
The Group is exposed to equity price risk on its listed investment
classified and measured at fair value through other comprehensive
income (FVOCI). This risk is not hedged.
The Group monitors this risk exposure by comparing the movement
in the quoted share price of this long-term investment against
movements in the NZX index over the same period.
As at 30 June 2020, the exposure to the listed investment at FVOCI
was $252,580,000 (2019: $286,807,000). A 10% increase or
decrease in the share price of this listed investment would result
in an increase or decrease of $25,258,000 (2019: $28,681,000)
in the fair value revaluation reserve through other comprehensive
income, with no effect on profit or loss.
Liquidity risk management
Liquidity risk is the risk that the Group will be unable to meet its
obligations as they fall due. This risk is managed by establishing
a target minimum liquidity level, ensuring that ongoing
commitments are managed with respect to forecast available
cash inflows.
The Group holds significant cash reserves which enable it to meet
its obligations as they fall due, and to support operations in the
event of unanticipated external events.
The Group has no borrowings (2019: Nil)
Contractual maturities of financial liabilities
The Group’s financial liabilities consist entirely of trade payables
and accruals, with no interest payable.
Financial liabilities
Trade payables
Rebates and promotional
allowances
Accrued charges
2020
$’000
129,951
2019
$’000
84,152
34,420
13,500
91,632
59,177
256,003
156,829
Maturity profile of the group’s payables and accruals
Payable:
Less than 3 months
3 to 6 months
2020
$’000
2019
$’000
254,664
156,829
1,339
–
256,003
156,829
The maturity analysis of future undiscounted lease liability payments
is included in Note D7.
D3. Cash and short-term deposits
Cash at banks and on hand
Short-term deposits
2020
$’000
413,032
441,146
854,178
2019
$’000
193,472
271,333
464,805
Bank balances and cash comprise cash held by the Group. Interest is earned at floating rates based on daily bank deposit rates. The carrying
value of cash assets approximates their fair value.
Cash at banks and on hand includes AUD 67,039,000 (2019: AUD 40,470,000), GBP 3,396,000 (2019: GBP 3,267,000), USD 40,158,000
(2019: USD 14,310,000), and RMB 134,648,000 (2019: RMB 112,997,000).
Recognition and measurement
Cash and cash equivalents in the statement of financial position comprise cash at bank and on hand and short-term deposits with an original
maturity of three months or less that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of
changes in value.
D4. Cash flow information
Reconciliation of after tax profit with net cash flows from operating activities
Net profit for the year
Adjustments for non-cash items:
Depreciation and amortisation
Loss on disposal
Impairment of goodwill, and trademarks
Share-based payments
Net foreign exchange gain
Deferred tax
Changes in working capital:
Trade and other receivables
Prepayments
Inventories
Trade and other payables
Customer contract liabilities
Income tax payable
Net cash inflow from operating activities
2020
$’000
385,837
4,393
905
–
8,331
(573)
(5,040)
(4,452)
(6,643)
(38,879)
108,572
2,342
(27,382)
427,411
2019
$’000
287,741
2,176
–
2,059
8,184
(1,732)
(2,822)
(7,117)
(13,676)
(44,352)
64,920
533
(6,846)
289,068
88 The a2 Milk Company
Building from strength 89
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
D5. Share capital
D7. Leases
2020
2019
Number
of shares
Share capital
$’000
Number
of shares
Share capital
$’000
The Group has entered into leases for office and industrial premises, motor vehicles and equipment. There are no financial restrictions placed
upon Group entities by entering into these leases. The Group has the option, under some leases, to lease the assets for additional terms. All
lease contracts with options to renew contain market review clauses in the event that an option to renew is exercised.
The Group adopted NZ IFRS 16 Leases from 1 July 2019, using the modified retrospective transition method, with no restatement of
prior periods.
735,048,405
144,495
730,039,067
141,566
Right-of-use assets
Carrying amounts of right-of-use assets recognised and movements during the period:
Movements in contributed equity:
Fully paid ordinary shares:
Balance at beginning of year
Movements in the period:
Exercise of options
Vesting of performance rights
Vesting of time-based rights
Gift shares
Share match programme
Partly paid shares fully paid
Share issue costs
3,800,000
2,394
3,000,998
1,890
848,000
122,184
3,693
7,869
–
–
–
–
–
115
–
(71)
–
508,340
–
–
1,500,000
-
4,781,746
2,438
5,009,338
–
–
–
–
1,080
(41)
2,929
Balance at end of year
739,830,151
146,933
735,048,405
144,495
Partly paid ordinary shares:
Balance at beginning of year
Partly paid shares fully paid
Balance at end of year
–
–
–
–
–
–
1,500,000
(1,500,000)
–
–
–
–
Total ordinary shares on issue
739,830,151
146,933
735,048,405
144,495
Holders of fully paid ordinary shares are entitled to receive dividends as may be declared from time to time and are entitled to one vote
per share at shareholders’ meetings.
The company does not have authorised capital or par value in respect of its issued shares.
D6. Nature and purpose of reserves
Employee equity settled payments reserve
The employee equity settled payments reserve is used to record the value of share-based payments provided to employees and contractors,
including key management personnel.
Fair value revaluation reserve
The fair value revaluation reserve is used to record movements in the fair value of listed investments classified as financial assets measured
at fair value through other comprehensive income.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements
of foreign operations.
Treasury shares reserve
The treasury shares reserve comprises the cost, net of any tax effects, of the Company’s shares purchased and held by the trustee of the a2MC
Group Employee Share Trust to be available solely for participants in Group employee share plans. When shares are subsequently released from
the trust to employees to satisfy share rights that have vested under employee share plans, the carrying value of the released shares is transferred
to the employee equity settled payments reserve. During the year the Trust acquired 770,747 shares on-market at an average price of $16.42. As
at 30 June 2020 the Trust held 743,676 of the Company’s shares (2019: Nil).
Movements on these reserve accounts are set out in the Consolidated statement of changes in equity.
2020
1 July 2019
Additions
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2020
Cost
Accumulated depreciation
Carrying amount 30 June 2020
Lease liabilities
Leased
property
$’000
Office &
computer
$’000
Plant &
equipment
$’000
7,499
10,174
(2,068)
159
15,764
17,817
(2,053)
15,764
56
73
(18)
4
115
133
(18)
115
314
106
(160)
5
265
427
(162)
265
Carrying amounts of lease liabilities and movements during the period:
1 July 2019
Additions
Accretion of interest
Payments
Net foreign currency exchange differences
As at 30 June 2020
Current
Non-current
Maturity analysis of future undiscounted lease liability payments:
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Total undiscounted lease liabilities
2020
$’000
3,977
9,174
6,566
19,717
Total
$’000
7,869
10,353
(2,246)
168
16,144
18,377
(2,233)
16,144
2020
$’000
8,105
10,353
389
(2,164)
160
16,843
3,407
13,436
16,843
2019
$’000
2,505
4,064
3,576
10,145
The Group has a lease contract that has not yet commenced as at 30 June 2020. The future lease payments for this non-cancellable
lease contract are $nil within one year, $1,646,000 within five years and $1,368,000 thereafter.
90 The a2 Milk Company
Building from strength 91
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – CAPITAL AND
FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED
30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2020
D7. Leases (continued)
Amounts recognised in profit or loss
Depreciation expense – right-of-use assets
Interest expense – lease liabilities
Expenses relating to short-term leases (included in Other expenses)
Expenses relating to low-value assets (included in Other expenses)
Total amount recognised in profit or loss
Cash flows for leases
Total cash outflows
Non-cash additions to right-of-use assets and lease liabilities
2020
$’000
2,246
389
1,264
23
3,922
2020
$’000
1,775
10,353
Recognition and measurement
A right-of-use asset and a lease liability are recognised at the lease commencement date.
The right-of-use asset is initially measured at cost, and subsequently at cost less accumulated depreciation as the asset is written off over
the term of the lease, impairment losses, and any adjustments for remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments payable from the commencement date, discounted using
the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally,
the Group uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected
to be payable, or changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised.
Key estimates and judgements
Determination of the lease term
Judgement is applied to determine the lease term for those lease contracts that include renewal or termination options. This assessment
impacts the lease term, which may significantly affect the amount of lease liabilities and right-of-use assets recognised.
In determining the lease term consideration is given to all facts and circumstances that create an economic incentive to exercise an
extension option, or not to exercise a termination option.
D8. Capital expenditure commitments
As at 30 June 2020, there were no capital expenditure commitments (2019: $nil).
D9. Contingent liabilities
As at 30 June 2020, there were no material contingent liabilities (2019: $nil).
E. Group structure
This section provides details of the Group structure and the entities included in the consolidated financial statements.
E1. Consolidated entities
Details of the Company’s subsidiaries at 30 June 2020 are as follows:
Parties to Deed of
Cross Guarantee
(Note E2)*
Principal place
of business
Proportion of
ownership interest
2020
2019
Parent entity:
The a2 Milk Company Limited
Subsidiaries:
The a2 Milk Company (Export) Limited
a2 Holdings UK Limited
a2 Infant Nutrition Limited
The a2 Milk Company (New Zealand) Limited
a2 Australian Investments Pty. Limited
a2 Botany Pty Ltd
The a2 Milk Company (Australia) Pty Ltd
a2 Exports Australia Pty Limited
a2 Infant Nutrition Australia Pty Ltd
The a2 Milk Company (Nutrition) Pty Limited
a2MC Group Employee Share Trust
The a2 Milk Company Limited
The a2 Milk Company LLC
The a2 Milk Company
The a2 Milk Company Limited
a2 Infant Nutrition (Shanghai) Co., Ltd
The a2 Milk Company (Singapore) Pte. Ltd
–
–
#
–
–
–
–
–
–
–
–
–
New Zealand
–
–
New Zealand
New Zealand
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
UK
USA
USA
Canada
China
Singapore
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
* Each party to the Deed of Cross Guarantee is a member of the “closed group” under the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
# a2 Infant Nutrition Limited is the subject of an ASIC declaration notice under section 601 CK(7) of the Corporations Act 2001 (Cth, Australia), providing relief from
the requirement to prepare and lodge an audited financial report in Australia.
The a2MC Group Employee Share Trust was established in December 2019. There were no other entities over which the Company
gained or lost control during the year.
All subsidiaries have a balance date of 30 June, except for The a2 Milk Company Limited (UK), The a2 Milk Company LLC,
and a2 Infant Nutrition (Shanghai) Co., Ltd which have a balance date of 31 December.
92 The a2 Milk Company
Building from strength 93
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – GROUP STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – GROUP STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2020
E1. Consolidated entities (continued)
Recognition and measurement
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its powers over the entity. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those
of the Group.
Transactions eliminated on consolidation
Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in
preparing the consolidated financial statements.
E2. Deed of cross guarantee
Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the Australian-incorporated wholly owned subsidiaries
listed in Note E1 as parties to the Deed of Cross Guarantee are eligible for relief from the Corporations Act 2001 (Cth, Australia) requirements
for preparation, audit and lodgement of financial reports and directors’ reports in Australia.
It is a condition of the ASIC Corporations Instrument that the Company and each of the subsidiaries listed enter into a Deed of Cross
Guarantee. The effect of the Deed is that each party guarantees to each creditor of each other party payment in full of any debt in the event
of winding up of the other party under certain provisions of the Corporations Act 2001 (Cth, Australia) . If a winding up occurs under other
provisions of the Act, the guarantee will only apply if after six months after a resolution or order for winding up any creditor has not been
paid in full.
A consolidated statement of comprehensive income and statement of financial position, comprising the Company and controlled entities
which are parties to the Deed of Cross Guarantee (each party being a member of the closed group), after eliminating all transactions
between parties to the Deed of Cross Guarantee, at 30 June 2020 are set out as follows:
Consolidated statement of comprehensive income and retained earnings for the year ended 30 June 2020
Revenue
Expenses
Finance income (net)
Profit before tax
Income tax expense
Profit after tax
Other comprehensive income
Total comprehensive income for the year
Retained earnings at beginning of the year
Transfers to and from reserves
Retained earnings at end of year
2020
$’000
1,667,201
(1,157,359)
5,594
515,436
(159,790)
355,646
2,322
357,968
614,385
(2,322)
970,031
2019
$’000
1,254,926
(844,540)
4,121
414,507
(123,919)
290,588
(4,212)
286,376
323,797
4,212
614,385
E2. Deed of cross guarantee (continued)
Consolidated statement of financial position as at 30 June 2020
Assets
Current assets
Cash and short-term deposits
Trade and other receivables
Prepayments
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Other financial assets
Deferred tax asset
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Customer contract liabilities
Lease liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity
2020
$’000
2019
$’000
799,370
414,177
84,944
55,282
143,498
1,083,094
12,206
12,580
13,437
297,981
24,314
360,518
1,443,612
69,783
49,018
106,396
639,374
9,942
–
12,901
304,252
5,059
332,154
971,528
273,133
158,831
3,773
1,952
13,753
292,611
392
10,954
11,346
303,957
1,139,655
146,933
970,031
22,691
1,431
–
42,942
203,204
228
–
228
203,432
768,096
144,495
614,385
9,216
1,139,655
768,096
94 The a2 Milk Company
Building from strength 95
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
F. Other disclosures
F1. Related party transactions
Ultimate Parent
The a2 Milk Company Limited is the parent of the Group. The Group consists of The a2 Milk Company Limited and its subsidiaries
as listed in Note E1.
Key management personnel
Key management personnel are defined as those persons having significant authority and responsibility for planning, directing and
controlling the activities of the Group, and includes the directors, and a number of senior executives.
Key management personnel compensation:
Short-term employee benefits
Other long-term benefits
Termination payments
Share-based payments
Key management personnel include the following senior executives:
Chief Executive Officer
Chief Financial Officer
Chief Executive, Asia Pacific
Transactions with key management personnel and their related parties
The following table provides details of transactions that were entered into for the relevant financial year.
2020
$’000
7,697
32
1,776
1,715
11,220
2019
$’000
6,576
36
916
5,693
13,221
F2. Share-based payments
Long term incentives (LTI)
The LTI plan is designed to retain and motivate senior executives and management to achieve the Group’s long term strategic goals by
providing rewards that align the interests of the executives and management with shareholders. Performance rights and time-based rights
are currently issued under the LTI plan; and options were previously issued in FY15 and FY16.
No dividends are paid on rights and options, and they do not entitle their holder to attend or vote at Company meetings. No amount
is payable upon vesting of the performance and time-based rights and conversion to shares. Each exercised right is an entitlement
to one fully paid ordinary share in the Company.
During FY19 a revised remuneration policy for the Group was finalised. This review resulted in the temporary deferral of the LTI plan
for participating Group employees in the 2019 financial year.
During the year the Board authorised the issue of 1,057,914 performance rights, and 238,229 time-based rights to senior employees
and contractors under the LTI plan.
Performance rights granted in FY20
To accommodate the deferral of the LTI programme in FY19, the performance rights issued in the period are in two tranches,
with differing performance periods and performance hurdles as set out below, with Tranche 1 reflecting the FY19 deferral.
The performance rights vest subject to:
• Continuing employment.
• Minimum performance hurdles of both:
– A minimum diluted earnings per share (EPS) compound annual growth rate (CAGR) increase of 15% over the performance
period (E-CAGR); and
– A minimum normalised sales CAGR increase of 15% over the performance period (S-CAGR).
• No awards will vest if E-CAGR or S-CAGR is less than 15% over the respective performance periods.
• 50% of the awards will vest if E-CAGR and S-CAGR of 15% is achieved, up to a maximum of 100% of the award vesting if S-CAGR
of either 22% or more, or 25% or more is achieved, as follows:
Performance rights grants:
Performance period
EPS hurdle
Performance hurdles
50% vests
85% vests
100% vests
Related parties
a2 Holdings UK Limited – consultancy fees paid to Lovat Partners
Limited, an entity controlled by David Hearn, Chairman of the
Company. The fees were charged at commercial rates. This consulting
arrangement ceased on 18 December 2018.
No amounts were receivable from related parties at year end.
Loans to key management personnel and their related parties
Sales
Other transactions
Outstanding
receivables/
(payables)
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
Tranche 1
390,440 rights
Tranche 2
667,474 rights
2 years to 30 June 2021
3 years to 30 June 2022
15%
15%
15%
20%
25%
15%
18.5%
22%
–
–
–
44
–
–
Diluted earnings per share are as reported in the Company’s Annual Report in respect of that financial year.
Normalised sales in respect of a financial year, are sales plus such additional revenue or income items less such unusual and one-off items (in
each case, as may be determined by the Board in its absolute discretion) based on relevant financial information reported in the Company’s
Annual Report in respect of that financial year.
No loans were outstanding or made to key management personnel and their related parties at any time during the 2020 and
2019 financial years.
96 The a2 Milk Company
Building from strength 97
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
F2. Share-based payments (continued)
Time-based rights granted in FY20
Vesting of the time-based rights issued in the period is subject to continuing employment, with no other performance conditions,
vesting as follows:
Number of time-based rights granted:
9,868
94,219
94,219
7,550
10,221
7,551
14,601
238,229
Grant dates
19 Nov 2019
19 Nov 2019
19 Nov 2019
24 Apr 2020
24 Apr 2020
24 Apr 2020
24 Apr 2020
Vesting dates
21 Aug 2020
24 Aug 2020
23 Aug 2021
20 Sep 2020
20 Feb 2021
20 Sep 2021
20 Feb 2022
Fair value of performance and time-based rights granted during the period
The fair value of services received in return for performance and share-based rights granted to employees is measured by reference to the fair
value of the rights granted. The estimate of the fair value of the services received is measured by reference to the vesting conditions specific
to the grant based on a simplified Black-Scholes option pricing model.
F2. Share-based payments (continued)
Options granted in previous years (legacy scheme)
The options granted in FY16 vest in five equal tranches over five years, commencing on the first anniversary of the date of the grant.
The FY16 awards of options vest subject to share price growth performance hurdles over a five year performance period, and continuing
employment. The absolute share price growth hurdle is a minimum share price CAGR of 10% over the performance period, subject to annual
retesting until the performance condition is met, or the performance period ends.
On vesting, options are exercised on payment of the exercise price. Each exercised option is an entitlement to one fully paid share in
the Company.
LTI outstanding as at 30 June 2019
Number
Grant Dates
Vesting Dates
Expiry Dates
Performance rights – FY18 grants
617,300
Performance rights – FY20 grants
866,574
1,483,874
Time-based rights – FY19 grants
62,539
28-Sep-17
& 6-Mar-18
1-Sep-20
& 6-Mar-21
19-Nov-19,
24-Apr-20 & 11-Jun-20
20-Aug-21
& 21-Aug-22
13-Jul-18
& 1-Aug-18
19-Nov-19
& 24-apr-20
12-Aug-15
28-Aug-19
to 1-Aug-21
21-Aug-20
to 20-Feb-22
12-Aug-16
to 12-Aug-20
28-Jun-21
& 6-Dec-21
20-Aug-21
& 21-Aug-22
28-Aug-19
to 1-Aug-21
21-Aug-20
to 20-Feb-22
12-May-21
Number
2020
1,738,087
(437,127)
1,057,914
(875,000)
1,483,874
Number
2019
1,612,200
(119,900)
245,787
–
1,738,087
Fair value of performance and
time-based rights granted during
the period and assumptions
Performance rights
Time-based rights
Time-based rights – FY20 grants
Tranche 1
Tranche 2
Grant date
19-Nov-19
11-Jun-20
19-Nov-19
24-Apr-20
11-Jun-20
19-Nov-19
24-Apr-20
Options – FY16 grants
Fair value at measurement date
Share price at grant date
Performance rights life
$14.03
$14.12
1.75yrs
$18.83
$18.95
1.19yrs
$13.86
$14.12
2.76yrs
$19.34
$19.70
2.33yrs
$18.60
$18.95
2.19yrs
$14.08
$14.12
$18.99
$19.70
Various
Various
Performance rights granted in previous years
The FY18 performance rights awards vest subject to an earnings per share (EPS) performance hurdle, and continuing employment. The
absolute EPS hurdle is a minimum diluted EPS compound annual growth rate (CAGR) increase of 15% over the performance period, with
no retesting. 50% of the awards will vest if diluted EPS CAGR of 15% is achieved, and up to a maximum of 100% of the award will vest if
diluted EPS CAGR of either 20% or more, or 25% or more is achieved, as follows:
Performance hurdles
Performance rights movements:
Outstanding at the beginning of the year
Forfeited during the period
Granted during the period
Vested during the period
Outstanding at the end of the year
238,229
300,768
3,200,000
3,200,000
Number of rights as at 30 June 2020:
Performance period
50%
100%
Fair value
The weighted average remaining contractual life of performance rights is 1.2 years (2019: 1.1 years)
FY18
320,000 rights
297,300 rights
3 years
2 years
EPS CAGR 15% EPS CAGR 20%
EPS CAGR 15% EPS CAGR 25%
$5.75
$12.65
Time-based rights granted in previous years
Vesting of the time-based rights is subject to continuing employment, with no other performance conditions, vesting as follows:
Number of time-based rights granted:
Grant dates
Vesting dates
31,270
31,269
62,539
98 The a2 Milk Company
1-Aug-18
1-Aug-18
1-Aug-20
1-Aug-21
Fair value
$12.75
$12.75
Building from strength 99
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS – OTHER DISCLOSURES
FOR THE YEAR ENDED 30 JUNE 2020
F3. Auditor’s remuneration
The auditor of the Company is Ernst & Young Australia.
Amounts received or due and receivable by Ernst & Young for:
An audit or review of the financial report of the Group
Other services:
Market research
Sustainability reporting advisory
F4. Subsequent events
2020
$’000
970
182
23
1,175
2019
$’000
701
79
40
820
No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the
operations, the results of these operations or state of affairs of the Group in subsequent financial years.
F2. Share-based payments (continued)
Time-based rights movements:
Outstanding at the beginning of the year
Granted during the period
Vested during the period
Outstanding at the end of the year
Number
2020
184,723
238,229
(122,184)
300,768
Number
2019
–
693,063
(508,340)
184,723
The weighted average remaining contractual life of time-based rights is 0.7 years (2019: 0.6 years)
Options movements:
Weighted average
exercise price
2020
Weighted
average
exercise price
2019
Number
2020
Outstanding at the beginning of the year
$0.63
7,000,000
Forfeited during the period
Granted during the period
Exercised during the period
Outstanding at the end of the year
Exercisable at the end of the year
–
–
$0.63
$0.63
–
–
(3,800,000)
3,200,000
1,400,000
The weighted average remaining contractual life of options is 0.1 years (2019: 0.7years)
The weighted average share price on exercise of the options in the period was $19.55.
$0.63
$0.63
–
$0.63
$0.63
Number
2019
12,400,998
(2,400,000)
–
(3,000,998)
7,000,000
2,400,000
Other employee equity schemes
In the period, employees not participating in the LTI plan were invited to participate in the following new schemes:
• Gift offer: employees received Company shares to the value of approximately A$500 each.
• Share Match Programme: employees undertaking to purchase Company shares for a minimum value of A$200 to a maximum value of
A$2,000 up to 30 September 2020 from their after-tax pay will receive matching shares from the Company equal to the number of shares
acquired and retained under the scheme, subject to continuing employment up to September 2021.
Amounts recognised in the consolidated statement of comprehensive income
During the year ended 30 June 2020, a $8,331,000 expense was recognised in the consolidated statement of comprehensive income
for equity settled share-based payment awards (2019: $8,184,000).
Recognition and measurement
The grant date fair value of share-based payment awards made to employees is recognised as an employee expense with a corresponding
increase in the employee equity benefit reserve, over the period that the employees become unconditionally entitled to the awards. The
amount recognised as an expense is adjusted over the period to reflect the number of awards for which the related service and non-market
vesting conditions are expected to be met, but is not adjusted when market performance conditions are not met.
100 The a2 Milk Company
Building from strength 101
FINANCIAL STATEMENTS OTHER
INFORMATION
CONTENTS
Company disclosures
Corporate directory
104
112
102 The a2 Milk Company
Building from strength 103
COMPANY
DISCLOSURES
1. Substantial product holders
The shares of the Company are quoted on the NZX, the ASX and Chi-X.
3. Twenty largest fully paid equity security holders
The names of the 20 largest holders of ordinary shares in the Company as at 3 August 2020 are listed below:1
According to substantial product holder notices and the Company’s records, the following persons were substantial product holders in
respect of the ordinary shares of the Company as at 30 June 2020 (such disclosure being required by the Financial Markets Conduct Act
2013 (NZ)) and as at 3 August 2020 (such disclosure being required by the ASX Listing Rules):
As at 30 June 2020
As at 3 August 2020
Number of
ordinary shares
in the Company
in which a
Relevant Interest
is held
51,494,591
47,255,990
46,904,625
38,298,101
Number of
ordinary shares
in the Company
in which a
Relevant Interest
is held
% of ordinary
shares held
6.96
6.39
6.34
5.18
51,494,591
47,255,990
46,904,625
38,298,101
% of ordinary
shares held
6.96
6.39
6.34
5.18
Name
The Vanguard Group, Inc
Mitsubishi UFJ Financial Group, Inc.
Commonwealth Bank of Australia
Blackrock, Inc. and related bodies corporate
The total number of voting shares on issue as at 30 June 2020 was 739,830,151 and the total number of voting shares on issue as at
3 August 2020 was 739,861,421.
2. Voting rights
During the period 1 July 2019 to 30 June 2020, each fully paid ordinary share of the Company gave the holder the right to cast one vote
per shareholder on a show of hands and one vote per share on a poll on any resolution. All votes cast at shareholder meetings are by way
of poll.
HSBC Custody Nominees (Australia) Limited
HSBC Nominees (New Zealand) Limited
Citibank Nominees (NZ) Ltd
JPMorgan Chase Bank
HSBC Nominees (New Zealand ) Limited
J.P. Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Accident Compensation Corporation
Tea Custodians Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Limited
New Zealand Superannuation Fund Nominees Limited
BNP Paribas Nominees (NZ) Limited
HSBC Custody Nominees (Australia) Limited
National Nominees New Zealand Limited
BNP Paribas Nominees Pty Limited
Premier Nominees Limited
BNP Paribas Noms Pty Ltd
FNZ Custodians Limited
Total
Number of shares
%
141,253,096
19.09%
54,221,466
47,576,766
47,297,005
39,694,328
38,412,332
28,568,198
19,364,224
19,261,687
18,104,499
13,769,882
13,593,277
12,611,261
10,923,014
10,739,171
9,825,434
9,633,819
8,653,719
5,813,228
4,865,707
7.33%
6.43%
6.39%
5.37%
5.19%
3.86%
2.62%
2.60%
2.45%
1.86%
1.84%
1.70%
1.48%
1.45%
1.33%
1.30%
1.17%
0.79%
0.66%
554,182,113
74.90%
104 The a2 Milk Company
Building from strength 105
OTHER INFORMATION COMPANY DISCLOSURES (CONTINUED)
4. Spread of security holders as at 3 August 2020 and number of holders
5. Directors’ relevant interests & share dealings
a) Fully paid ordinary shareholders
Size of shareholding
Number of holders
Number of shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 shares or more
29,033
11,560
2,202
1,670
152
44,617
10,040,271
27,469,571
16,344,123
42,487,443
643,520,013
739,861,421
%
1.36
3.71
2.21
5.74
86.98
100.00
As at 3 August 2020, the number of holders with between 1 and 48 ordinary shares (being less than a minimum holding under the
NZX Listing Rules based on the closing market price) was 237 and the number of holders with less than a marketable share parcel of the
Company’s fully paid ordinary shares of AU$500 (under the ASX Listing Rules), based on the closing market price, was 490.
b) Options to acquire ordinary shares (unlisted securities not quoted by the ASX or NZX)
Size of holding
Number of holders
Number of options
100,001 options or more
4
4
3,200,000
3,200,000
c) Performance rights (unlisted securities not quoted by the ASX or NZX)
Size of holding
5,001 to 10,000
10,001 to 100,000
100,001 performance rights or more
Number of holders
Number of rights
6
30
1
37
44,742
931,579
507,553
1,483,874
d) Time-based rights (unlisted securities not quoted by the ASX or NZX)
Size of holding
5,001 to 10,000
10,001 to 100,000
100,001 time-based rights or more
Number of holders
Number of rights
1
3
1
5
9,868
71,192
188,438
269,498
%
100.00
100.00
%
3.02
62.78
34.20
100.00
%
3.66
26.42
69.92
100.00
Directors of the Company reported the following acquisitions and disposals of relevant interests in financial products of the Company
during the period 1 July 2019 to 30 June 2020:
Beneficial/
Non-beneficial
Acquired/
(Disposed)
Class of
financial product
Registered holder
Jayne Hrdlicka
Carla Jayne Hrdlicka
Carla Jayne Hrdlicka
Carla Jayne Hrdlicka
Carla Jayne Hrdlicka
David Hearn
Lovat Partners Limited
David Hearn
David Hearn
Lovat Partners Limited
David Hearn
David Hearn
David Hearn
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Date
24 Aug 19
24 Aug 19
19 Nov 19
Consideration
paid/(received)
NZ$
N/A
N/A
N/A
(90,914)
Time-based rights1
90,914
Ordinary shares1
164,312
Performance rights
(146,684)
Ordinary shares
25 Nov 19
($2,178,286.74)
(100,000)
Options2
100,000
Ordinary shares2
(100,000)
Ordinary shares2
(3,100,000)
Options2
3,100,000
Ordinary shares2
25 Nov 19
25 Nov 19
25 Nov 19
24 Apr 20
24 Apr 20
N/A
$63,000
($1,483,010)
N/A
$1,953,000
(280,857)
Ordinary shares2
24 Apr 20
($5,555,351.46)
(1,614,143)
Ordinary shares2
28 Apr 20
($31,621,061.37)
1 Reflects the issue of ordinary shares to Jayne Hrdlicka following the vesting and automatic exercise of time-based rights.
2 Reflects (i) issue of ordinary shares following exercise of options held by Lovat Partners Limited; (ii) subsequent transfer of those ordinary shares from
Lovat Partners Limited to David Hearn; and (iii) subsequent sale by David Hearn of some of those ordinary shares on market.
Directors of the Company as at 30 June 2020 held the following relevant interests in the financial products of the Company as at that
date:
Registered holder
David Hearn
Beneficial/
Non-beneficial
Balance held
No’s
Class of financial product
David Lovat Gordon Hearn
Beneficial
1,305,000
Ordinary shares
Julia Hoare
Julia Cecile Hoare
Pip Greenwood
Pip Greenwood
Warwick Every-Burns
Warwick Every-Burns
as trustee of Wake Super Fund
Kathryn Every-Burns
Jesse Wu
Jesse Jen-Wei Wu
6. Credit rating status
Not applicable.
7. NZX Waivers
Beneficial
50,000
Ordinary shares
N/A
–
Ordinary shares
Beneficial
Beneficial
Beneficial
75,000
25,000
Ordinary shares
Ordinary shares
27,000
Ordinary shares
A summary of all waivers granted and published by NZX following an application by the Company or relied upon by the Company during
the reporting period ended 30 June 2020 is as follows:
• On 19 November 2019, NZX granted the Company a waiver from NZX Listing Rule 5.1.1. The waiver allowed a wholly owned
subsidiary of the Company to enter into a variation to an existing supply contract with a subsidiary of Synlait Milk Limited without
obtaining shareholder approval.
106 The a2 Milk Company
Building from strength 107
OTHER INFORMATION COMPANY DISCLOSURES (CONTINUED)
8. Particulars of notices or statements given to or approved by the Board
8.1. Interests register
The Company is required to maintain an interests register in which the particulars of certain transactions and matters involving the
directors must be recorded. The interests register for the Company is available for inspection on request by shareholders.
Directors have declared interests during the reporting period ended 30 June 2020 as follows:
• The Company has arranged and paid for policies for directors’ liability insurance which ensure that the directors are protected against
liabilities and costs for acts or omissions by them in their capacity as directors of the Company and its subsidiaries.
• The Company has provided Deeds of Indemnity to all directors for potential liabilities and costs they may incur for acts or omissions in
their capacity as directors of the Company and its subsidiaries.
• Directors’ relevant interests and share dealings as outlined in section 5, above.
• Pip Greenwood’s spouse owns an adviser entity which provides financial and transaction consulting services to a range of
organisations, including from time to time to participants in the dairy sector (other than the Company). While Ms Greenwood has no
involvement in that entity, or its clients, she has disclosed that interest as that entity may from time to time consult to entities with
which the Company may transact. The Company and Ms Greenwood have agreed a protocol whereby Ms Greenwood abstains from
all Board discussions and decisions involving that entity or its clients, and does not receive relevant Board papers, where this occurs.
During the reporting period ended 30 June 2020, directors advised the Company of the following changes or additional entries in the
Company’s interests register:
Name of Director
Entity
Julia Hoare
Julia Hoare
Julia Hoare
David Hearn
David Hearn
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Pip Greenwood
Meridian Energy Limited
New Zealand Post Limited
AWF Madison Group Limited
Safestore Holdings Plc
Lumyna Investments Limited
Vulcan Steel Limited
Position
Director
Ceased to be a director
Ceased to be a director
Director
Director
Director
Fisher & Paykel Healthcare Corporation Limited Director
Spark New Zealand Limited
Westpac New Zealand Limited
Auckland Writers Festival Trust
Milbrook 7th Trust
Oriental Trust
Portia Trust
Rakino Trust
Theresa Gattung Investment Trust
Director
Director
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Subsidiary
Jurisdiction
Directors (or equivalent)
The a2 Milk Company (New Zealand) Limited New Zealand
Julia Hoare
a2 Australian Investments Pty. Limited.
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
Geoffrey Babidge (Appointed: 9 December 2019)
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
a2 Botany Pty Ltd
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
The a2 Milk Company (Australia) Pty Ltd
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Peter Nathan
Jayne Hrdlicka (Resigned: 9 December 2019)
a2 Infant Nutrition Australia Pty Ltd
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
Peter Nathan
Jayne Hrdlicka (Resigned: 9 December 2019)
a2 Exports Australia Pty Limited
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
The a2 Milk Company (Nutrition) Pty Limited
Australia
Geoffrey Babidge (Appointed: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned:28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned:28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
The a2 Milk Company Limited
British Columbia, Canada
Geoffrey Babidge (Appointed: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
No other entries were made in the interests registers of the Company’s subsidiaries during the reporting period.
The a2 Milk Company Limited
Scotland, UK
David Hearn
8.2. Directors of subsidiary companies
The following persons held office as directors of subsidiary companies during the year ended 30 June 2020.
Subsidiary
Jurisdiction
Directors (or equivalent)
The a2 Milk Company (Export) Limited
New Zealand
Geoffrey Babidge (Appointed: 9 December 2019)
The a2 Milk Company
Delaware, USA
David Hearn
William Keane (Resigned: 31 March 2020)
The a2 Milk Company LLC
Delaware, USA
Geoffrey Babidge (Appointed: 9 December 2019)
Geoffrey Babidge (Appointed: 9 December 2019)
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
a2 Infant Nutrition Limited
New Zealand
Geoffrey Babidge (Appointed: 9 December 2019)
a2 Holdings UK Limited
New Zealand
Geoffrey Babidge (Appointed: 9 December 2019)
Peter Nathan
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
Race Strauss (Appointed: 28 April 2020)
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
a2 Infant Nutrition (Shanghai) Co., Ltd.
China
Li Xiao
The a2 Milk Company (Singapore) Pte. Ltd.
Singapore
Race Strauss (Appointed: 28 April 2020)
Shaun Singh
Craig Louttit (Resigned: 28 April 2020)
Jayne Hrdlicka (Resigned: 9 December 2019)
No employee of the Company appointed as a director of the Company or its subsidiaries receives remuneration or other benefits in their
role as a director. The remuneration and other benefits of such employees, received as employees, are included in the relevant bandings
for remuneration disclosed under Employee remuneration range in section 13, below.
108 The a2 Milk Company
Building from strength 109
OTHER INFORMATION COMPANY DISCLOSURES (CONTINUED)
8.3. Use of company information
The Board received no notices during the period from directors requesting to use Company information received in their capacity
as directors which would not have been otherwise available to them.
9. Limitations on the acquisition of securities
The Company is not subject to chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Cth, Australia) dealing with the acquisition of its
shares (including substantial holdings and takeovers).
Limitations on the acquisition of the securities imposed by New Zealand law are as follows:
(i)
In general, fully paid ordinary shares in the Company are freely transferable, and the only significant restrictions or limitations in
relation to the acquisition of fully paid ordinary shares in the Company are those imposed by New Zealand laws relating to takeovers,
overseas investment and competition.
(ii) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20% of the voting rights in the
Company, or the increase of an existing holding of 20% or more of the voting rights in the Company, can only occur in certain
permitted ways. These include a full takeover offer, a partial takeover offer, an acquisition approved by an ordinary resolution,
an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if
a shareholder holds 90% or more shares in the Company, in each case in accordance with the New Zealand Takeovers Code.
(iii) The New Zealand Overseas Investment Act 2005 regulates certain investments in New Zealand by overseas persons. In general terms,
the consent of the New Zealand Overseas Investment Office will likely be required where an ‘overseas person’ acquires shares or an
interest in shares in the Company that amount to more than 25% of the shares issued by the Company or, if the overseas person
already holds 25% or more, the acquisition increases that holding.
(iv) The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring shares in the Company if the acquisition would
have, or would be likely to have, the effect of substantially lessening competition in a market.
The Company has complied with, and continues to comply with, the requirements of the NZX Listing Rules with respect to the issue
of new securities.
10. On-market buy-back
There is no current on-market buy-back of the Company’s securities.
11. Donations
The Company and its subsidiaries have made donations of cash and inventories totalling NZ$2,803,295 during the year ended
30 June 2020 (2019: NZ$944,057).
12. Directors and officers
For the purposes of NZX Listing Rule 3.8.1(c), the quantitative breakdown as to the gender composition of the Company’s Directors and
Officers as at 30 June 2020 and 30 June 2019 is as follows:
At 30 June 2020
At 30 June 2019
Directors
Females
Males
Officers
Females
Males
5
2
3
8
2
6
6
2
4
9
4
5
13. Employee remuneration range
The following table shows the number of employees and former employees of the Company and its subsidiaries (not being directors or
former directors of the Company) who, in their capacity as employees, received remuneration and other benefits valued at or in excess of
$100,000 during the year to 30 June 2020.
The remuneration bands are expressed in New Zealand Dollars.
Remuneration range
$ (gross)
$100,000 – $109,999
$110,000 – $119,999
$120,000 – $129,999
$130,000 – $139,999
$140,000 – $149,999
$150,000 – $159,999
$160,000 – $169,999
$170,000 – $179,999
$180,000 – $189,999
$190,000 – $199,999
$210,000 – $219,999
$220,000 – $229,999
$240,000 – $249,999
$250,000 – $259,999
$260,000 – $269,999
$270,000 – $279,999
$290,000 – $299,999
$300,000 – $309,999
$330,000 – $339,999
$370,000 – $379,999
$380,000 – $389,999
$390,000 - $399,999
$410,000 - $419,999
$440,000 – $449,999
$470,000 – $479,999
$480,000 – $489,999
$500,000 – $509,999
$520,000 – $529,999
$530,000 – $539,999
$550,000 – $559,999
$600,000 – $609,999
$660,000 – $669,999
$680,000 – $689,999
$780,000 – $789,999
$830,000 – $839,999
$840,000 – $849,999
$880,000 – $889,999
$930,000 – $939,999
$950,000 – $959,999
$1,060,000 – $1,069,999
$1,100,000 – $1,109,999
$1,150,000 – $1,159,999
$1,230,000 – $1,239,999
Number of
employees in
the year ended
30 June 2020
(based on actual
payments)
Value of
options and
performance
rights
included in
remuneration
range
Number of
employees in
the year ended
30 June 2020
(based on actual
payments)
Value of
options and
performance
rights
included in
remuneration
range
1
1
1
1
1
1
1
1
890,880
921,600
921,600
1,228,800
1,459,200
1,996,800
2,526,000
5,632,000
136
21,248,921
Remuneration range
$ (gross)
$1,360,000 – $1,369,999
$1,390,000 – $1,399,999
$1,500,000 – $1,509,999
$1,670,000 – $1,679,999
$2,030,000 – $2,039,999
$3,010,000 – $3,019,999
$3,140,000 – $3,149,999
$6,237,000 – $6,239,999
Total
The table includes base salaries, short-term incentives, contributions
paid to an individual’s superannuation fund, or, if an individual
is a KiwiSaver member, contributions of 3% of gross earnings
towards that individual’s KiwiSaver scheme, and exercised options
and performance rights. The table does not include amounts paid
after 30 June 2020 relating to FY20, and long-term incentives that
have been granted and have not yet vested or been exercised (as
applicable).
14. Principal activities
There were no significant changes to the nature of the business
of the Company (or its subsidiaries) or to the classes of business in
which the Company (or its subsidiaries) had an interest during the
year ended 30 June 2020.
15. Reconciliation of EBITDA to net profit after
tax
Earnings before interest, tax, depreciation and amortisation (EBITDA)
is a non-GAAP measure. However, the Company believes that it
provides investors with a comprehensive understanding of the
underlying performance of the business.
230,400
268,800
268,800
552,541
Group EBITDA
Depreciation and
amortisation
434,700
EBIT
Interest income
Interest expense
June 2020
$’000
June 2019
$’000
549,719
413,610
(4,393)
545,326
6,135
(389)
(2,176)
411,434
4,277
–
Income tax expense
(165,235)
(127,970)
Net profit after tax
385,837
287,741
1,075,200
537,600
645,120
814,080
844,800
13
11
7
12
7
8
8
4
2
2
7
2
1
4
4
3
3
1
1
1
2
2
1
1
2
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
110 The a2 Milk Company
Building from strength 111
OTHER INFORMATION
CORPORATE
DIRECTORY
Our a2 Milk™
difference
Company
The a2 Milk Company Limited
New Zealand share registry
Australian share registry
Registered offices
Auditor
Link Market Services Limited
PO Box 91976
Victoria Street West
Auckland 1142
New Zealand
Telephone: +64 9 375 5998
Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Australia
Telephone: +61 1300 554 474
Level 10
51 Shortland Street
Auckland 1010
New Zealand
Level 4
182 Blues Point Road
McMahons Point NSW 2060
Australia
Telephone: +61 2 9697 7000
Ernst & Young
200 George Street
Sydney NSW 2000
Australia
Company Secretary
Jaron McVicar
Corporate website
www.thea2milkcompany.com
Conventional cows’ milk
contains two main types of beta
casein protein, A2 protein and
A1 protein – our branded milk
is different from conventional
cows’ milk because it comes
from cows selected to naturally
produce only the A2 protein
type and no A1.
Our milk is comparable to conventional
cows’ milk in other respects.
Our branded milk is naturally occurring
and not a product of genetic engineering
or technological processes.
Many consumers and healthcare
professionals report that some people
who experience digestive issues drinking
conventional cows’ milk may experience
benefits when they switch to a2 MilkTM.
a2 Milk™ brand is much more than just
a difference between A1 and A2 protein
types. Our brand stands for a series
of wonderful qualities from where we
source our milk, the extra special care we
take from cow to consumer, and how we
educate and engage with our consumers.
That’s why there is only one a2 Milk™
from The a2 Milk Company.
Originally all cows
produced milk
containing only the
A2 protein type
Genetic variation has resulted in mixed
herds over time
Typical cow herds
produce conventional
milk containing a mix of
A1 and A2 protein types
Our branded milk is sourced
from herds producing milk
naturally containing only the
A2 protein type and no A1
112 The a2 Milk Company
Building from strength 113
OTHER INFORMATION T
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The a2 Milk Company Limited (Australian Registered Body Number 158 331 965 – Incorporated in New Zealand)