The a2 Milk Company
2023
Annual
Report
We pioneer the future
of Dairy for good
The a2 Milk Company has
made significant progress
in FY23 towards its
strategic goals
REVENUE
$1,207m
$52m
$241m
$1,446m
$1,593m
$159m
$265m
$181m
$304m
$914m
$1,022m
$1,108m
FY21
FY22
FY23
INFANT MILK FORMULA (IMF)
LIQUID MILK
OTHER
EBITDA
NPAT*
EPS
m
9
1
2
$
m
6
9
1
$
m
3
2
1
$
m
6
5
1
m $
3
2
1
$
m
1
8
$
.
c
2
1
2
c
5
.
6
1
c
9
.
0
1
FY21
FY22
FY23
FY21
FY22
FY23
FY21
FY22
FY23
NET CASH
$757 million**
* Attributable to owners of the Company.
** Including term deposits and borrowings, excluding subordinated
non-current shareholder loans.
Contents
Chair's letter
CEO's year in review
Building a sustainable growth business
Who we are
What we do
How we create value
What makes us unique
Our strategy
Our reporting approach
Progress towards our goals
Risks and opportunities
Corporate governance
Governance
Directors
Executive Leadership Team
Remuneration
Financial statements
2
4
14
15
16
18
20
21
24
25
50
60
60
64
66
68
76
Company disclosures
135
1
ANNUAL REPORT 2023
Chair’s letter
CEO’s year in review
Financial statements
Chair’s
letter
David Hearn
Dear Shareholder,
On behalf of your Board, I am delighted to announce the continued
strong performance of The a2 Milk Company in FY23. Throughout
the year, the Company has demonstrated an unwavering
commitment to executing our growth strategy, delivering strong
results and several important achievements. I am particularly proud
of this given the very challenging macroeconomic landscape and
external headwinds we are facing in key markets.
We have embraced our refreshed purpose to pioneer the future
of dairy for good and our vision to create an A1-free world where
dairy nourishes all people and our planet. These guiding principles
are now living through our business, guiding the Company to
execute our goals more effectively in the years ahead.
Delivering results on a consistent basis is the hallmark of building
successful businesses. Therefore, I am pleased to note that the
results that we have delivered in FY23 are in line with the medium-
term ambitions we have set for the business. In particular, our
strategic China label infant milk formula (IMF) brand, a2 至初®,
was the standout performer, delivering another year of double-
digit growth. It is also encouraging that, despite significant market
contractions, the work we are doing to support our English label
IMF business has laid a good foundation for continued progress in
the future.
During the year, we also achieved a number of important
regulatory milestones. We are incredibly pleased to have received
confirmation of re-registration from China’s State Administration
for Market Regulation (SAMR) for our upgraded China label IMF
product in June 2023. The achievement of this re-registration has
been an enormous team effort over a number of years. Our team’s
dedication, resilience and expertise during this journey has been
extraordinary, and I am incredibly proud of every member of the
a2MC team involved in this achievement.
I would like to acknowledge the support we received from SAMR,
New Zealand’s Ministry for Primary Industries, our strategic partners
in China, China National Agriculture Development Group Co., Ltd
and China State Farm Agribusiness (CSFA), and our manufacturing
partner, Synlait and its major shareholder Bright Dairy, throughout
the process. During the year we also renewed our exclusive import
and distribution arrangements with CSFA for a further five years.
We are pleased that CSFA will remain the exclusive import agent
for our China label IMF product.
2
These significant milestones highlight the strength of our
relationships with strategic partners in China and our shared
confidence in the future. The approval provides us with continued
access to China’s substantial registered domestic IMF market, which
remains the key focus of our growth strategy. It also allows us to
continue building on the strong brand trust and loyalty we have
developed with Chinese families over the past decade.
During the year, we also received confirmation from the US Food
and Drug Administration (FDA) that our application for temporary
permission to import, sell and distribute a2 Platinum® IMF product
from New Zealand into the USA was approved. While the USA
represents a significant opportunity to develop our brand in the
IMF category over the long-term, the FDA application process for
permanent approval to import and sell IMF product remains a
challenging process and timeframe.
In addition to strong financial performance and key regulatory
decisions, we also undertook an important capital management
activity during the year. Exiting the previous fiscal year with
improving confidence in our strategy and execution and
having determined that the Company had surplus capital to
our requirements in the short-term, we announced we would
undertake an on-market share buyback. We commenced this in
the first half of FY23 and completed the NZ$149 million buyback
programme in the second half.
Our capital management framework continues to prioritise
investments in growth initiatives and maintaining balance sheet
flexibility ahead of shareholder capital returns. The business has
increased its supply chain transformation focus during the year with
new leadership and structure, increased in-sourcing and progressed
other growth capital expenditure projects supporting our long-term
strategic growth goals. However, when there is capital surplus to
achieving these priorities, we will make a disciplined assessment
of the potential to return capital to shareholders and the most
appropriate option to do so.
Building a sustainable growth businessCorporate governanceCompany disclosuresTHE a2 MILK COMPANY On behalf of the Board, I sincerely thank David Bortolussi, our
Managing Director and Chief Executive Officer, for his leadership
and impactful contribution to executing our strategy in very
challenging market conditions. At the Executive Leadership Team
(ELT) level, there have been a number of changes during the year,
including the appointment of David Muscat as Chief Financial
Officer and Chopin Zhang as Chief Supply Chain Officer, the role
expansion for Eleanor Khor as Managing Director – ANZ and
Strategy and Kevin Bush taking on the role of Managing Director
– USA. I thank David Bortolussi, the ELT and every member of the
a2MC team in all our regions for their contributions this year.
We have also made significant progress with regard to Board
renewal during the year, delivering on succession plans for long
serving directors and announcing new appointments.
In November 2022, I announced my intention to stand down as a
Director and Chair of the Board at the Annual Meeting in November
2023, following almost ten years with the Company. As a result, Pip
Greenwood, who has now been on the Board for over four years,
was unanimously elected to replace me as the Chair. Pip has the
skills and experience to lead the Board and I am delighted to hand
over the reins to such an outstanding director.
During the year we also announced that Julia Hoare, the Company’s
Deputy Chair, would step down from the Board after over nine
years of service. On behalf of the Board, I would like to express our
sincere appreciation for Julia’s outstanding service throughout her
tenure at The a2 Milk Company. Julia’s commitment and dedication
have been instrumental in the Company’s success, and we are
grateful for her invaluable contribution over the years.
Kate Mitchell was appointed to the Board in June 2023 and has
taken over as Audit and Risk Management Committee Chair. Kate
has significant governance experience and is currently Chair of The
New Zealand Merino Company and Link Engine Management and a
director of Heartland Group Holdings, Farm Right, and Christchurch
International Airport, for which she also serves as Chair of the Risk,
Audit & Finance Committee.
We also appointed David Wang to the Board during the year.
David brings extensive expertise across the Asia-Pacific region in
manufacturing and supply chain with over 30 years’ experience in
industrial and consumer goods businesses, including 15 years in
senior executive leadership roles in China and international markets.
I would like to extend my gratitude to all my fellow Directors for
their efforts and significant contributions during the past year. Their
expertise, guidance, and tireless work have played a vital role in
shaping our strategic direction and ensuring the Company’s growth
and prosperity.
Reflecting on the past decade for The a2 Milk Company, it has been
a truly extraordinary journey. It has been my privilege to have been
a Director and Chair of your Company through this transformative
period. As the pioneer and leader of the A2 protein category, we
have transformed from a fresh milk business in Australia to a global
nutritional dairy products company. We have developed a leading
brand in the China IMF market, the largest IMF market in the
world. We faced, and continue to face, a rapidly evolving business
landscape and uncertain times, including the global pandemic that
not only shifted the business environment for us but the entire
global economy from supply chain through to end consumer
behaviours, as well as several regulatory changes that disrupted
the industry we operate in. Together, we adapted, pivoted, and
continued to work through these challenges to be successful.
Looking ahead, the Company is well-positioned to achieve its
strategic goals and thrive to seize additional market opportunities in
the future. Your Board and the ELT are committed to the Company’s
purpose and vision. The strategy is in place and, with a continued
disciplined approach to execution, will continue to gain traction.
To you, our shareholders, thank you for your trust and support. To
our customers, thank you for your loyalty. To our strategic partners,
thank you for your long-term support and collaboration. We are
committed to delivering value for shareholders and positively
impacting the world – to pioneer the future of dairy for good.
I look forward to seeing you at the Annual Meeting in November,
which will be my last. In the meantime, I wish you and your family
the best of health.
Yours faithfully,
David Hearn
Chair
20 August 2023
3
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
CEO’S YEAR IN REVIEW - DAVID BORTOLUSSI
Strong performance in a
very challenging market
The Company’s revenue for FY23 was up 10.1% driven
by strong growth in the China & Other Asia segment
up 37.9%, with the USA and MVM segments also up.
Group financial performance1,2,3
The a2 Milk Company (“the Company”, “a2MC”) today announces its financial results for the year ended
30 June 2023. Key results are as follows:
Revenue
EBITDA4
Net profit after tax
- Attributable to owners of the Company
Basic earnings per share (EPS) (cents)
Net cash5
FY23 ($M)
FY22 ($M)
VARIANCE (%)
1,592.9
1,446.2
219.3
155.6
21.2
757.2
196.2
122.6
16.5
816.5
10.1%
11.8%
26.9%
28.7%
(7.3)%
The Company’s revenue for FY23 was up 10.1% driven by strong growth in the China & Other Asia segment
up 37.9%, with the USA and MVM segments also up 27.1% and 9.2% respectively, partially offset by a
30.2% decrease in the ANZ segment mainly due to an intentional change in English label distribution strategy.
Revenue growth slowed to 3.0% in 2H23 mainly due to a sharp decline in English label IMF Daigou market
value in 2H23 and cycling higher lockdown-driven sales in 4Q22. Higher revenue growth of 18.6% in 1H23
was mainly due to China label IMF sales cycling lower sales in 1H22 due to channel rebalancing and USA sales
benefiting from 2H22 new product launches. Notwithstanding, an important milestone was achieved in FY23
with China & Other Asia segment revenue exceeding $1 billion (representing 62.9% of total revenue) for the
first time demonstrating the importance of the Company’s China focused growth strategy.
1 All references to full year (FY), halves (H) and quarters (Q) relate to the Company’s financial year, ending 30 June.
2 All figures are in New Zealand Dollars (NZ$), unless otherwise stated.
3 All comparisons are with the 12 months ended 30 June 2022 (FY22), unless otherwise stated.
4 EBITDA is a non-GAAP measure and does not have a standardised meaning prescribed by GAAP. However, the Company believes
that in combination with GAAP measures, it assists in providing investors with a comprehensive understanding of the underlying
operational performance of the business. A reconciliation of EBITDA to net profit after tax is shown in the Company’s FY23 Investor
Presentation (slide 55) dated 21 August 2023.
Including term deposits and borrowings, excluding subordinated non-current shareholder loans.
5
4
Building a sustainable growth businessCorporate governanceCompany disclosuresChair’s letterTHE a2 MILK COMPANY “ We reached new highs in
China brand awareness,
trial and loyalty metrics
and were a top-3 share
gainer in the China IMF
market overall, with
record market share.”
ANNUAL REPORT 2023
5
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
CEO’S YEAR IN REVIEW CONTINUED
FINANCIAL HIGHLIGHTS
$1,593m
Revenue
10.1%
$219m
EBITDA
11.8%
21.2c
Earnings per share
28.7%
$757m*
Net cash
OPERATIONAL HIGHLIGHTS
$156m
NPAT attributable to owners
of the Company
26.9%
$149m
Share buyback completed
Brand health
Top-3 share gainer
SAMR
Reached new highs in China brand
health metrics
Achieved top-3 share gainer in China
IMF market overall
Received new GB brand
re-registration
Innovation
Ramped up innovation through new
product launches in all categories
China State Farm
Extended exclusive partnership with
China State Farm Agribusiness
Sustainability
Advanced sustainability programmes
across climate, nature and packaging
* Including term deposits and borrowings, excluding subordinated non-current shareholder loans.
6
THE a2 MILK COMPANY
“ We are pleased to have
received approval from
China’s State Administration
for Market Regulation for the
re-registration of our China
label IMF product a2 至初®.”
The balance sheet remains in a strong position with closing
cash and term deposits of $802.2 million and net cash of
$757.2 million. The lower cash balance compared to June 2022
mostly reflects the $149 million used to execute the on-market
share buyback. In accordance with the Company’s Capital
Allocation Framework, a2MC has decided to prioritise investment
in growth opportunities (focused on Supply Chain transformation)
and balance sheet strength, ahead of returning further capital to
shareholders at this point in time but will continue to review this
on a regular basis.
Inventory at the end of the period was $193.4 million, higher
than at the end of 1H23, mainly due to stock building of China
label IMF inventory to accommodate the timing of new China
GB registration and product transition, as well as a sharp decline
in the Daigou channel and the timing of Synlait supply which
resulted in higher English label inventory at year end. Channel
inventory and product freshness remained at target levels across
the business. The Company’s China label inventory levels and
product freshness at 30 June 2023 (96% of expiry dates >18
months from manufacturing date) were in line with Company’s
plans for the new GB product transition.
Excluding interest and tax, operating cash inflow was
$127.4 million, representing cash conversion of 58%7 which was,
as anticipated, lower than the prior period due to the catch-up
of FY22 payments in China which were impacted by COVID-19
delays (outside the Company’s control) as well as prepayments for
China label stock build to support transition.
Gross margin percentage6 of 46.5% was 0.5 ppts higher reflecting
benefits from a2 Platinum® English label refresh positioning and
distribution model changes and the cycling of other nutritional
stock write-downs recognised in the prior year, partially offset by
unfavourable foreign exchange on cost of goods sold. Increases
in farmgate milk pricing, raw materials, and other inflationary
pressures were mitigated by price rises and other cost saving
initiatives. Gross margins in 2H23 were also impacted by the
timing of MVM sales which were weighted to the second half.
EBITDA increased by 11.8% to $219.3 million, primarily reflecting
higher revenue and gross margin improvements. EBITDA margin
as a percentage of revenue increased to 13.8% (up 0.2ppts),
with margin expansion achieved notwithstanding an increase in
marketing investment by 13.1% and Administrative and Other
expenses increasing by 9.0%. Administrative and Other expenses
increased due to continued capability building (particularly in
China and Supply Chain teams), further investment in product
innovation and science research projects, the timing of long-term
incentives and increased travel costs post COVID-19.
Foreign exchange rates were volatile during the year. Group
revenue benefited from favourable foreign exchange movements
in the order of $40 million, primarily in 1H23. However, the
combined realised and unrealised foreign exchange impact on
cost of goods sold, administrative and other expenses on EBITDA
was not material in part due to hedging.
Depreciation and amortisation was similar to prior year at $18.2
million, net interest income increased to $21.6 million due to
higher interest rates and the effective tax rate reduced to 35.0%
primarily driven by the alignment of the accounting and tax
treatment of foreign exchange contracts. NPAT including amounts
attributable to non-controlling interests was $144.8 million, an
increase of 26.2%. The non-controlling interests represent China
Animal Husbandry Group’s (CAHG’s) 25% interest in MVM.
Excluding this loss of $10.8 million, NPAT attributable to owners
of the Company was $155.6 million.
6 Gross margin percentage is calculated as sales less cost of goods sold, divided by sales.
7 Operating cash conversion defined as net cash flow from operating activities before interest and tax divided by EBITDA.
7
ANNUAL REPORT 2023 CEO’s year in review
CEO’S YEAR IN REVIEW CONTINUED
Financial statements
China market update8
The overall China IMF market declined 12.1% in volume and
14.4% in value in FY23. The decline in BCD cities exceeded
Key&A cities particularly in the second half, with Key&A market
value decreasing by 13.1% in 2H23 and BCD market value
decreasing by 18.3% in 2H23. The market decline reflected the
decrease in newborns overall, socio-demographic differences
between Key&A and BCD cities, challenging macroeconomic
conditions impacting retail sales, and increased competitive
intensity and promotional activity driven by excess industry
capacity and the commencement of the market-wide transition
to new GB standards.
The number of newborns in China declined by 10.0% in CY22
to 9.6 million9 which is likely to decline further in CY23 having
regard to various factors and data points, including socio-
demographics, prevailing youth unemployment rates, recent
marriage numbers and pregnancy indicators. The Company still
expects a post COVID-19 recovery in birth rates in the medium-
term with the longer-term birth rate inherently uncertain. The
lower birth rate in CY22 along with the rolling impact of fewer
births in prior years reduced China IMF market Stage 3 sales (the
biggest segment of the IMF market) in particular which declined
by 20.6% in 2H23 and accelerated to be down 23.5% in 4Q23.
China label market value declined 14.9% in FY23 with 2H23
down 17.3%. The MBS channel was down 12.7% in FY23
and DOL was down 4.5%. Within China label channels, a2MC
continues to be supported by a mix shift to the ultra-premium
price segment (although this segment also declined in absolute
terms in FY23), rapid growth of the A2 protein segment and
increasing brand concentration with the top-10 brands now
accounting for 77% of the total China label market.
English label market value decline stabilised in FY23 down 14.0%
with 2H23 down 11.5%. Within English label channels, the
Daigou channel experienced a sharp decline of 39.5% in FY23,
while O2O was down 17.9% in FY23 and CBEC experienced
sustained growth up 8.3%10, continuing the significant mix shift
across English label channels. a2MC’s distribution strategy is
focused on continuing to develop the CBEC and O2O channels
where it continues to gain share.
In the context of challenging socio-demographic, macroeconomic
and IMF market conditions, a2MC’s growth in FY23 in China label
IMF of 27.8% and total IMF of 8.4% was very encouraging.
Regional performance
1. China & Other Asia
Growth in value and volume of the China & Other Asia segment
was driven by continued execution of the Company’s growth
strategy particularly in China label. Revenue of $1,002.2 million
was up 37.9%, with EBITDA of $254.1 million up 75.1%. The
combination of increased investment and higher impact marketing
campaigns had a positive impact on key brand health metrics in
2H23, which in turn supported increased sales and market share.
New highs in overall China brand health metrics were achieved
with total a2MC IMF prompted brand awareness increasing from
52% to 63%, unprompted brand awareness increasing from 17%
to 23% and top of mind brand awareness increasing from 7% to
9%, and trial and loyalty metrics increasing as well11.
8 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key&A + BCD cities); unless otherwise stated.
9 China National Bureau of Statistics.
10 Smart Path China IMF online market tracking: for CBEC only retail sales (by value).
11 a2MC internal data based on the Company’s brand health tracking. Average brand health metrics for each financial year based on 3 surveys in FY21 and FY22, and
2 surveys in FY23. Sample skews to a2MC target consumers ie higher income earners based in provinces / cities that are the focus of sales and marketing activities.
8
Building a sustainable growth businessCorporate governanceCompany disclosuresChair’s letterTHE a2 MILK COMPANY “ Our strong performance was supported
by significant marketing investment in
brand building campaigns as well as
innovative trade activation initiatives.”
China label IMF
The strong performance in China label IMF sales in 1H23
continued into 2H23 despite the declining market and heightened
volatility with the market transitioning to new GB products.
Consumer demand for a2 至初® remained strong with market
value share improvement both in-store and online. Sales for
a2 至初® China label IMF increased 27.8% to $559.3 million,
with 2H23 sales up 16.0%. Growth was supported by continued
strong execution of the Company’s growth strategy through
same store sales volume growth and favourable pricing and
foreign exchange.
The strong performance was supported by significant marketing
investment in brand building campaigns as well as innovative
consumer campaigns such as caravan tour roadshow events to
drive brand awareness and trial in BCD cities, and a corporate
social responsibility campaign with Operation Smile to
engage consumers with impact.
MBS weighted distribution increased as well as same store sales,
driving growth in Key&A and BCD cities. Offline distribution
declined slightly to 25.9k stores at the end of June 2023 from
26.5k at the end of June 202212. A significant number of store
closures occurred in the market during the period reflecting
challenging retail and category conditions. The Company is
building share in national key accounts, pursuing regional key
accounts, as well as targeting greater penetration of BCD cities,
whilst developing new strategies for accelerated growth in certain
prioritised provinces.
Retail market value for the MBS channel was down 12.7% in
FY2313, with 2H23 down 15.9%, reflecting challenging China
IMF market dynamics including store closures and increased
discounting of old GB product prior to transitioning to new
product. a2MC’s market value share in MBS increased to 3.4%
at the end of June 2023 compared with 3.0% at the end of June
2022, making a2 至初® one of the fastest growing international
brands within MBS in FY23.
Accelerating online growth is a strategic priority for China label
IMF and performance in DOL is a key measure of success. Retail
market value for the DOL channel was down 4.5% in FY2314,
with 2H23 down 13.6% cycling 4Q22 lockdown impacts. a2MC’s
market value share in DOL increased to 3.3% at the end of June
2023 compared with 2.5% at the end of June 2022, and was
the number 2 share gainer in the channel. Within this channel
the Company’s share of early-stage product sales has increased
significantly as more users shift to online channels at all stages of
their IMF lifecycle.
English label IMF15
The China & other Asia segment benefited from continued
execution of the Company’s English label IMF distribution strategy,
resulting in a further sales mix shift towards the CBEC channel,
as well as improved brand health metrics following increased
investment as part of the a2 Platinum® English label refresh.
Overall, English label IMF sales of $386.2 million were up 51.0%,
with 2H23 growing 37.3% on prior year.
a2MC continued to prioritise overall channel economics as part of
its inventory management plan and promotional activity in CBEC.
English label sales during key sales events were up moderately,
with market pricing across CBEC platforms and reseller channels
at target levels, and emerging platforms seeing stronger growth
from a lower base. Platform rankings on mainstream platforms
were maintained or improved in the Double 11 and 618 sales
events, and a2MC ranks as one of the leading IMF players on
Douyin (TikTok).
The Company is focused on CBEC growth and building digital
marketing and e-commerce capability to further improve its
execution which is having an impact, particularly on new user
recruitment. Retail sales for the overall CBEC channel were up
8.3% in FY2316. Despite market value growth in 2H23 slowing
to 2.9% from 13.8% in 1H23, a2MC’s was the number 1 share
gainer in CBEC with market value share increasing to 22.6% at
the end of June 2023 compared with 19.4% at June 2022. Similar
to DOL, a2MC’s share of early-stage product sales also increased
significantly in CBEC which is becoming increasingly important
relative to the Daigou channel.
12 a2MC internal data tracking of stores with active sales in the past 6 months.
13 Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value). FY23 versus FY22.
14 Smart Path China IMF online market tracking: domestic online platform sales (by value). FY23 versus FY22.
15 English label IMF includes sales via CBEC, Korea, and Hong Kong Resellers.
16 Smart Path China IMF online market tracking: for CBEC only retail sales (by value). 12-month rolling share. FY23 versus FY22.
9
ANNUAL REPORT 2023 CEO’s year in review
CEO’S YEAR IN REVIEW CONTINUED
Financial statements
Liquid milk and other nutritional products
Liquid milk and other nutritional products
Sales of liquid milk in China & Other Asia segment were up
36.7% to $15.2 million and revenue from other nutritional
products was also up 87.9% to $41.4 million, benefitting from
stronger execution, brand awareness and mix shift from ANZ
channels to CBEC. The strong performances in these categories
were supported by increased marketing investment through brand
building campaigns.
2. Australia and New Zealand
The Australia and New Zealand (ANZ) segment result was
driven by lower IMF sales to ANZ resellers / Daigou due to an
intentional change in a2MC’s distribution strategy, partially offset
by the positioning and pricing benefit associated with the a2
Platinum® refresh. Overall, ANZ sales volumes were down with
segment revenue of $371.7 million, down 30.2%, and EBITDA of
$93.5 million, down 46.0%.
IMF resellers and retail
With Daigou channel market value down 39.5% in FY2317 and
the change to the Company’s English label distribution strategy
in 2H22, IMF reseller and retail sales decreased 50.6% to
$162.5 million. The Company has proactively changed its English
label distribution model to more controlled channels and to more
transparent and performance-based distribution partnerships in
all channels. These declines were partially offset by a significant
increase in sales to CBEC (see commentary in China & Other
Asia above). Whilst the Company’s English label IMF focus going
forward is likely to be on CBEC and O2O given the recent evolving
dynamics, it will also continue to support the Daigou channel
through multi-channel consumer marketing campaigns and
reseller trade support programmes.
Development of the O2O channel has also been a key focus area
for English label distribution. In 2H23, the Company entered into
a new partnership with one of the leading distributors in China
and is focused on improving share in O2O key accounts, long-
tail O2O and Pop accounts complementing certain Company led
initiatives. Results relating to this partnership in the future will be
reflected in the China & Other Asia segment.
In 2H23, while the O2O channel market value was down 15.7%,
its trajectory improved versus 1H23, and a2MC’s channel market
share increased significantly at the end of June 2023 versus
last year18.
Due to sample size, data classification and associated volatility
reasons, the Company focuses more on its combined O2O and
Daigou channel market share based on Kantar survey data
which is the only source of market share data for these channels.
Based on this data, a2MC’s market share in the O2O and Daigou
channel increased to 20.8% at the end of June 2023 versus
19.5% at the end of June 202219.
Australian liquid milk sales were up by 7.1% to $184.1 million,
with 2H23 growth of 8.5%, driven by a full 6-month contribution
from price increases taken in 1H23 in response to higher raw milk
prices and other input and logistics cost increases, favourable
foreign currency movements plus continued strong performance
from the launch of a2 Milk® Lactose Free.
This result was partly offset by consumption volume declines
impacted by increased cost of living, as well as several challenges
within the supply chain network impacting on-shelf availability.
a2 Milk® Lactose Free (launched in August 2022) has performed
ahead of expectations, with sales supported by distribution
expansion into Queensland, South Australia and Tasmania in
2H23. This saw market share in the lactose free segment in initial
launch cities (New South Wales and Victoria) increase to 18.4%20
in June 2023 compared with 12.3% in December 2022.
a2MC recorded market value share of 11.3% at the end
of June 202321 versus 12.4% at the end of June 2022. This
result was impacted by consumers trading down due to wider
macroeconomic factors, as well as the prior comparable period
(primarily 1H22) benefitting from strong in-home consumption
from COVID-19 lockdowns. The current market share is broadly
similar to pre-COVID-19 levels, with a2MC’s MAT market volume
share increasing from 6.6% in January 2020 to 6.8%22 at June
2023. Whilst market volume for liquid milk increased during the
COVID-19 lockdown period, it decreased 4.5% from January
2020 to June 2023. Pleasingly, three a2 Milk® products achieved
rankings in the top-10 products in the dairy category in Grocery.
Consistent with IMF, revenue for other nutritional products was
also impacted by the channel mix shift to CBEC, declining 21.4%
to $25.1 million.
3. USA
Accelerating the path to profitability in the USA by FY25/
FY26 is a strategic priority for the Company. During FY23, USA
profitability improved through a combination of higher revenue
growth from both core range and new products, as well as cost
reduction initiatives. As a result, USA revenue increased 27.1% to
$105.1 million while EBITDA losses were reduced to $23.3 million
compared with a loss of $36.7 million in FY22.
Sales growth was driven by a modest increase in core liquid milk
volumes, contribution from new products, pricing and favourable
foreign exchange movements. Sales in 2H23 were broadly in
line with the first half, as the Company reduced promotional
spend. Despite this a2MC’s market value share in the premium
milk category for the Grocery channel increased from 2.0% in
June 2022 to 2.3% in June 202323.
17 Kantar data based on a panel of 9,000 consumers covering 0-6 year olds and only seeks to project ~40% of the population.
18 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share. FY23 versus FY22.
19 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share. FY23 versus FY22.
20 IRI Scan Data NSW and VIC Month ending 30 June 2023.
21 IRI Australian Grocery Weighted Scan 12-months ending 30 June 2023.
22 IRI Australian Grocery scan Weighted Scan MAT.
23 SPINS data for the Grocery channel only for the 52 weeks ending 30 June 2023 and 30 June 2022.
10
Building a sustainable growth businessCorporate governanceCompany disclosuresChair’s letterTHE a2 MILK COMPANY The lower EBITDA loss was mainly due to revenue growth, less
promotional activity, improved input costs and distribution rates,
lower marketing spend and reduced SG&A costs. Whilst reduced
marketing investment led to a lower level of brand awareness,
household penetration increased and brand loyalty and equity
ratings improved. The Company has recently changed the
management team in the USA and there will be a greater focus
on profitability going forward.
In November 2022, the Company received confirmation from the
FDA that its application for enforcement discretion to import, sell
and distribute a2 Platinum® IMF product from New Zealand into
the USA had been approved. a2MC is pursuing longer term FDA
approval of a2 Platinum® whilst carefully considering market entry
options. A small amount of product has been produced recently
to facilitate FDA required clinical studies and distribution trials
during FY24.
4. Mataura Valley Milk
Accelerating MVM’s path to profitability by FY26 or earlier is
also a strategic priority. During FY23, the Company accelerated
execution of its supply chain transformation strategy, including
increasing raw A1 protein free milk supply, completing the
insourcing of all a2 Milk™ Whole and Skim milk powder products,
completing production trials for insourcing of certain IMF product
with manufacturing to commence in 1H24, and commencing
production trials for a new English label IMF range, all with MVM
and new blending and canning partners prior to installing similar
capability at MVM.
Revenue of $113.9 million24 and an EBITDA loss of $26.5 million
were recorded for the period. The higher revenue reflected
12-months under a2MC ownership versus 11-months in
FY22 (due to acquisition timing) net of intercompany sales
of $32.3 million during the current period. EBITDA loss of
$26.5 million, compared to a reported loss of $18.8 million in
FY22 (or a loss of $23.2 million on a pro-forma unaudited basis
for 12-months). The slightly higher EBITDA loss was due to the
timing of sales in a volatile commodity and FX environment;
reduced demand from third-party customers in China; increased
investment in capability (including management changes),
significant product development trials; and investment to
support future nutritional powder production.
24 Revenue excluding intercompany sales.
Sustainability progress
a2MC’s sustainability strategy is focused on taking action on
climate change, achieving nature positive outcomes, supporting
thriving farms, utilising more sustainable packaging and supporting
communities in need. The Company has previously communicated
its Planet-related goals, including achieving Scope 1 and 2 net zero
emissions by 2030 and Scope 3 by 2040. The Company is pleased
to announce that it has refined its Scope 3 reduction ambition
to include an interim goal to reduce emissions intensity by 30%
by 2030.
The Company made significant progress on implementing its
Sustainability strategy during FY23. In 2H23, MVM commenced
the installation of a new high-pressure electrode boiler and the
full electrification of the site supplied by 100% renewable energy
such as hydro and wind, which is a first in the New Zealand market
that will substantially reduce a2MC’s total Scope 1 and 2 emissions
close to net zero. To accelerate addressing Scope 3 emissions,
the Company commenced an on-farm methane inhibitor pilot in
Australia with additional studies and a commercial trial planned
for FY24. The Company completed its first two nature risk and
opportunity assessments covering two regions in New Zealand,
Canterbury and Southland, where the largest A1 protein free milk
pools supplying the Company are based. a2MC also entered into
an environmental research agreement with Lincoln University,
continued to roll out its Farmer Environmental Plan programme,
and increased its support for its Farmer Grant programmes.
“ We advanced our
sustainability
programmes, including
commencing the
electrification of MVM
from 100% renewable
energy sources
and an on-farm
methane inhibitor
feasibility study.”
11
ANNUAL REPORT 2023 CEO’s year in review
CEO’S YEAR IN REVIEW CONTINUED
Financial statements
“ We will continue to focus on capturing
the full potential of China IMF as well
as ramping up innovation to pursue
opportunities in adjacent categories
and new markets.”
Strategy execution update
The Company has progressively refreshed its strategy and execution
framework over the past couple of years. At the a2MC’s Investor Day
in October 2021, the Company communicated its people, planet,
consumer and shareholder related goals, outlined its five strategic
priorities and highlighted key enablers to execution. Consistent with
its strategy, the Company will continue to focus on capturing the full
potential of China IMF as well as ramping up innovation to pursue
opportunities in adjacent categories and new markets.
From a shareholder goal perspective, the Company outlined its
medium-term financial ambition to grow revenue to $2 billion
over 5 or more years from FY21 and to target EBITDA margins in
the “teens”. In doing so, the Company highlighted the key risks
to achieving these goals and that the path is unlikely to be linear.
At that time, the Company also stated that EBITDA margins could
possibly increase to the “low-to-mid 20s” in the medium-to-long
term subject to higher than expected market recovery, English label
channel growth and market share gains.
a2MC has made solid progress towards these financial goals with
revenue growing from $1,207 million in FY21 to $1,593 million
in FY23, and EBITDA margins increasing from 10.2% in FY21 to
13.8% in FY23. Over this period, market conditions have been
more challenging than expected with the total China IMF market
value down 17.4% – China label down 16.0% and English label
down 24.7%25. a2MC has increased its share of the overall China
IMF market significantly from 4.9% in FY21 to 5.7%26 in FY23 and
remains on track to achieve its revenue goal of $2 billion. At this
stage, it is unlikely that EBITDA margins will increase to the “low-
to-mid 20s” in the foreseeable future due to market conditions
and outlook. Notwithstanding, the Company remains committed
to an EBITDA margin goal in the “teens” targeting year-on-year
improvement.
In terms of people, planet and consumer goals, a2MC has specific
non-financial measures of success that were also communicated
to the market at its October 2021 Investor Day. The Company has
also made substantial progress on achieving these goals, including:
improving safety metrics and employee engagement; accelerating
its sustainability programmes as noted above; and from a consumer
point of view it has improved brand health, increased market share
and ramped up innovation.
In addition to its strategic goals, last year a2MC updated its Purpose
and Vision and shared this in the Company’s 2022 Annual Report.
The Company’s purpose is to “Pioneer the future of Dairy for
Good” with a vision of creating “An A1-free world where Dairy
nourishes all People and our Planet” which has provided a north
star and greater emotional connection for the a2MC team and
stakeholders as to why the Company exists and the world it is
endeavouring to create.
More recently during 2023, the Company has refreshed its
Values and associated Standards of Behaviour which provide a
cultural framework and clarity around how team members should
execute the Company’s strategy individually and collectively.
The Company’s new values framework is expressed through the
“BOLD” acronym standing for Bold Passion, Ownership and Agility,
Leading Constructively and Disruptive Thinking. The refreshed
Values and Standards of behaviour build on what has contributed
to a2MC’s success in the past and emphasises areas that will be
key to executing our strategy, living our purpose and achieving our
vision and goals.
25 Kantar data based on a panel of 9,000 consumers covering 0-6 year olds and only seeks to project ~40% of the population.
26 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share. FY23 versus FY22.
12
12
Building a sustainable growth businessCorporate governanceCompany disclosuresChair’s letterTHE a2 MILK COMPANY Executive Leadership Team renewal
There have been significant Executive Leadership Team renewal
over the last two years, with all ELT members either new to the
Company or in expanded roles. During the year there were a
number of new appointments. David Muscat was appointed to
the role of Chief Financial Officer, having previously served in CFO
roles in Australia and Europe, bringing significant experience in
the consumer and retail sectors in various international markets,
including China. Chopin Zhang joined with over 35 years of
experience in supply chain management, including significant
experience in China and New Zealand IMF having most recently
served as CEO at Yashili from 2017 to 2020. Chopin’s primary
focus includes transforming the Company’s supply chain to enable
further market access, insourcing, innovation, and growth, which
is a key aspect of its refreshed growth strategy.
Additionally, there have been several internal appointments later
in the financial year. Kevin Bush, previously Executive General
Manager – ANZ, has recently been appointed to the role of
Managing Director – USA. Kevin’s main focus is driving growth
through innovation and accelerating the path to profitability in the
USA. Eleanor Khor, previously Chief Strategy Officer, has taken on
an expanded role, adding the leadership of a2MC’s ANZ business
as Managing Director – ANZ and Strategy. Eleanor’s focus is on
expanding the business in ANZ through innovation, with particular
attention to realising the full potential of the new a2 Milk™
Lactose-free product.
FY24 Outlook
Market conditions
China IMF market conditions are uncertain but likely to become
more challenging in FY24 with a further double-digit decline in
market value expected. This is due to volume declines driven by
the rolling impact of fewer newborns in recent years on later
stage IMF products, and a lower number of newborns expected
in CY23 due to the lagged impact of COVID-19 prior to an
expected increase in CY24. In addition, it is expected that average
selling prices will remain under pressure due to an increase in
competitive intensity driven by the market-wide transition to
new GB product, excess manufacturing capacity and challenging
macroeconomic conditions.
Business and category sales
The Company will continue to execute its growth strategy in
FY24, focusing on growing share in IMF as well as commercialising
opportunities in adjacent categories and new markets.
The Company expects to continue to gain market share in China
IMF, with growth dependent on the extent of market share gains
in a declining market. China label is expected to outperform
English label, and overall IMF growth is expected to be 2H24
weighted as the Company manages the transition to its new
China label product primarily in 1H24, and due to English label
cycling a relatively strong prior period in 1H23.
The Company expects growth in other nutritional products and
modest growth in ANZ and USA liquid milk. USA IMF sales are
expected to be immaterial. MVM sales are expected to decline
significantly due to increased levels of insourcing and lower GDT
market pricing.
Key financials
Due to the expected market conditions outlined above, a broad
range of sales outcomes is possible. At this stage, the Company is
expecting low single-digit revenue growth in FY24.
FY24 gross margin (% of sales) is expected to be similar to FY23,
with cost of goods sold headwinds related to China label IMF re-
formulation and upgraded packaging, ingredients and packaging
inflationary pressures, foreign exchange changes, product and
channel mix impacts, and higher Australian farmgate milk
pricing – offset by price increases, lower New Zealand farmgate
milk pricing for IMF, MVM internalisation benefits and cost
mitigation initiatives.
The Company plans to increase its brand investment in FY24 in
line with sales growth to support its new China label product
launch and growth. Administration & Other expenses are expected
to be similar to FY23.
The Company expects EBITDA margin (% of revenue) to be
broadly in line with FY23.
Operational cash conversion is expected to be higher in FY24
partly supported by an incremental reduction in inventory cover,
and capital expenditure is expected to increase to approximately
$26 million mainly due to the Kyabram facility upgrade and MVM
electrification projects.
Key risks
In addition to the challenges noted above and trading upside
and downside, other risks include, but are not limited to, residual
COVID-19 impacts on supply and demand, new China label
product transition, volume impact of price increases, cross border
trade, foreign exchange movements, changes in interest rates,
farmgate milk pricing and other commodity prices, and changes
in the regulatory environment. These challenges and risks could
materially impact expected revenue and earnings outcomes.
David Bortolussi
Managing Director and Chief Executive Officer
20 August 2023
13
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Building a
sustainable
growth business
14
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Who we are
The a2 Milk Company is a dairy
nutritionals company, fuelled by
its purpose to pioneer the
future of dairy for good.
The Company was founded in 2000 in New Zealand by scientist
Dr Corran (Corrie) McLachlan and his business partner, Howard
Paterson, who recognised that not all milk is the same. Dr Corrie
McLachlan joined Sir Robert (Bob) Elliot – who had earlier
discovered that proteins in milk affect people differently – to
pioneer research to understand these differences better.
Originally all cows’ milk contained only A2 beta-casein protein.
The A1 protein arose through a genetic mutation over many
years. Today, most regular milk contains a mixture of A1 and
A2-type beta-casein proteins. Results of several published
peer-reviewed human clinical trials have shown that A1 protein
can cause digestion issues for some people. A scientific and
proprietary way to identify cows that naturally produce A1 protein
free milk was also discovered.
Today, a2MC continues to pioneer this science and research,
bringing A1 protein free milk to the world, allowing more
consumers to enjoy its unique digestive and other potential
health benefits.
The Company produces a portfolio of products made with
milk from specially selected cows that naturally produce milk
containing only A2-type beta-casein protein and no A1. These
products include fresh milk, ultra-heat treatment (UHT) milk,
extended shelf life (ESL) milk, infant milk formula (IMF), plain milk
powders (including instant whole and skim milk powder), fortified
milk powders providing nutrition for children and pregnant
women and other dairy nutritional products primarily for the
New Zealand, Australia, China and North America markets.
The Company’s primary business activities are:
© China and Other Asia: Sales of China label and English label
IMF, liquid milk and other nutritional products in offline stores
and domestic and cross-border e-commerce channels.
© ANZ: Sales of English label IMF, plain and fortified milk
powders for children and pregnant women through reseller
and retail channels, and sales of liquid milk across Australian
and New Zealand retail channels. It is understood that the
majority of the infant milk formula sales to customers in ANZ
are ultimately consumed in China.
© North America: Sales of liquid milk and nutritional products in
the United States of America and liquid milk in Canada.
© Mataura Valley Milk: Production of nutritional and
commodity products for a2MC and other external customers
in overseas markets.
15
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
What we do
China and Other Asia
Revenue
$1,002m
EBITDA
$254m
Market size
Estimated China IMF market value
size for FY23 was NZD$33 billion1
Supply chain
© China State Farm importation
agent and master distributor
© Over 100 distributors
Our people
132 (headcount)
PRODUCT PORTFOLIO
Australia and New Zealand
Revenue
$486m
EBITDA
$67m
Market size
Australian fresh milk market
NZD$2.6 billion2 plus cross-border
access to China market
Supply chain Australia (Liquid Milk)
© Smeaton Grange (a2MC)
© Kyabram (a2MC)
© Four third-party processing
relationships
© 21 farmer suppliers
New Zealand (Nutritionals)
© 75% interest in Mataura
Valley Milk
© 19.8% interest in Synlait Milk
© 198 farmer suppliers
Our people
307 (headcount)
PRODUCT PORTFOLIO
Part of The a2 Milk Company
Part of The a2 Milk Company
16
Strategic partnersStrategic partnersLicensee fresh milk New ZealandLicensee fresh milk CanadaTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter North America
Revenue
$105m
EBITDA
($23m)
Market size
$4.1billion premium segment3
Supply chain
© Three third-party processing
relationships
© 9 farmer suppliers
Our people
26 (headcount)
PRODUCT PORTFOLIO
17
1 Source: FY23 Market size based on a2MC internal estimation approach,
which may be adjusted year-to-year, and which may result in market size not
being directly comparable across periods.
2 Source: Circana Grocery Scan data for measured market with internal
estimates using Circana Shopper Data for unmeasured market.
3 Source: SPINS; USA Food FY23 retail milk sales in the premium segment. Note,
in FY23 the Company has updated the market size from ‘US MULO + Natural
+ Regional + Independents’ to ‘US Food’ as it is a more representative metric.
Strategic partnersStrategic partnersLicensee fresh milk New ZealandLicensee fresh milk CanadaANNUAL REPORT 2023 CEO’s year in review
Financial statements
How we create value
Inputs
Our strategy
Page 21
Our people
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 team, aligned and focused to deliver on our purpose
and strategy. We are committed to the wellbeing and safety of our
people and are continuing to develop systems and processes to
identify, control, report, investigate and monitor health and safety
risks and actions across the business.
Our brand
Our trusted brand, our proprietary know-how and our A2 protein
expertise are our most valuable assets. We are committed to
maintaining and growing these assets with appropriate investment.
Through ongoing science and research programmes, we are
deepening our expertise and advancing global understanding
of the potential health benefits of a2 MilkTM.
Our environment
Access to natural resources and a thriving agricultural sector
that supports healthy ecosystems 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 are committed to finding unique and high
impact solutions across our value chain to help address these
challenges. Appropriately meeting this challenge will enable
us to continue providing premium a2 MilkTM based products
to our consumers and long-term value to our shareholders.
Our supply chain
Complementing our own fresh milk and nutritionals
production capability, we work closely with our suppliers and
farming community to maintain a reliable and responsible
sourcing and manufacturing supply chain. We believe this is
critical to our long-term success.
Our communities
We support communities in our key regions of New Zealand,
Australia, China and the USA, with a focus on proactive
wellness to nourish the lives of children and families and
helping them to thrive.
Our finances
We carefully balance investment in our supply chain and
distribution through both strategic partnerships and direct
ownership. Combined with the growth of our premium products,
this approach has enabled us to build a strong and robust balance
sheet, which, guided by our capital management framework,
provides financial capital for us to deploy in the pursuit of our
strategic objectives.
18
Purpose
Purpose
We pioneer
We pioneer
the future of
the future of
Dairy for good
Dairy for good
Page xx
Strategic priorities
– Invest in people and
planet leadership
– Capture full potential
in China IMF
– Ramp-up product innovation
– Transform our supply chain
– Accelerate path to profitability
in USA and MVM
Vision
Vision
An A1-free world
An A1-free world
where Dairy
where Dairy nourishes all
people and our planet
nourishes all people
and our planet
Values
– Bold passion
– Ownership and agility
– Leading constructively
– Disruptive thinking
Major
international
events
Competitive
intensity
Climate
and nature
Strategic
partnerships
Evolving
technology and
cyber security
The sale of
nutritional food
products
Doing business
in international
markets
Talent and
culture
Social licence
to operate
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Inputs
Our people
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 team, aligned and focused to deliver on our purpose
and strategy. We are committed to the wellbeing and safety of our
people and are continuing to develop systems and processes to
identify, control, report, investigate and monitor health and safety
risks and actions across the business.
Our brand
Our trusted brand, our proprietary know-how and our A2 protein
expertise are our most valuable assets. We are committed to
maintaining and growing these assets with appropriate investment.
Through ongoing science and research programmes, we are
deepening our expertise and advancing global understanding
of the potential health benefits of a2 MilkTM.
Our environment
Access to natural resources and a thriving agricultural sector
that supports healthy ecosystems 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 are committed to finding unique and high
impact solutions across our value chain to help address these
challenges. Appropriately meeting this challenge will enable
us to continue providing premium a2 MilkTM based products
to our consumers and long-term value to our shareholders.
Our supply chain
Complementing our own fresh milk and nutritionals
production capability, we work closely with our suppliers and
farming community to maintain a reliable and responsible
sourcing and manufacturing supply chain. We believe this is
critical to our long-term success.
Our communities
We support communities in our key regions of New Zealand,
Australia, China and the USA, with a focus on proactive
wellness to nourish the lives of children and families and
helping them to thrive.
Our finances
We carefully balance investment in our supply chain and
distribution through both strategic partnerships and direct
ownership. Combined with the growth of our premium products,
this approach has enabled us to build a strong and robust balance
sheet, which, guided by our capital management framework,
provides financial capital for us to deploy in the pursuit of our
strategic objectives.
Risks and
opportunities
Page 50
The sale of
nutritional food
products
Page 51
Doing business
in international
markets
Page 52
Purpose
Purpose
We pioneer
We pioneer
the future of
the future of
Dairy for good
Dairy for good
Page xx
Strategic priorities
– Invest in people and
planet leadership
– Capture full potential
in China IMF
– Ramp-up product innovation
– Transform our supply chain
– Accelerate path to profitability
in USA and MVM
Vision
Vision
An A1-free world
An A1-free world
where Dairy
where Dairy nourishes all
people and our planet
nourishes all people
and our planet
Values
– Bold passion
– Ownership and agility
– Leading constructively
– Disruptive thinking
Major
international
events
Page 53
Competitive
intensity
Page 54
Climate
and nature
Page 55
Strategic
partnerships
Page 56
Evolving
technology and
cyber security
Page 57
Talent and
culture
Page 58
Social licence
to operate
Page 59
Progress
towards our
goals
Page 25
People
Create a safe, diverse, inclusive
and engaging place for our
people to thrive, support our
farmers and contribute to
our communities.
Page 25
Planet
Protect our planet and cows,
rethink packaging, achieve net
zero and become nature positive.
Page 32
Consumers
Bring the unique benefits of
pure and natural a2 Milk™ to
as many consumers as possible.
Page 40
Shareholders
Create long-term, enduring value
for shareholders and a trusted,
transparent relationship.
Page 45
19
ANNUAL REPORT 2023 Chair’s letter
CEO’s year in review
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
What makes us unique
Purpose
We pioneer the
future of Dairy
for good
Vision
An A1-free world
where Dairy
nourishes all people
and our planet
Values refresh
Building on the purpose and strategy refresh in FY22, the Company also refreshed its values
and standards of behaviour in FY23. The values refresh was led by the Executive Leadership
Team and a cross-functional working group from the business, across multiple geographies,
teams and working styles, to ensure the values are relevant to all team members, underpin
culture in the organisation, and support execution of the Company’s strategy going forward.
Bold
passion
Ownership
and agility
Leading
constructively
Disruptive
thinking
We believe in the power
of the a2TM proposition.
We align on outcomes
and prioritise initiatives.
We are proud of what
we do and how we do it.
We are pioneers and always
find a way to make it happen.
We are effective in teams and
do what we say we will do.
We encourage and develop
ourselves and others.
We are passionate about our
consumers and customers.
We are flexible and act with
a sense of urgency.
We are honest, direct and
respectful in our interactions.
We think big, creatively
and logically to maximise
group impact.
We are better together
and unlock the power
of the collective.
We challenge existing ways
of working to achieve
better solutions.
20
THE a2 MILK COMPANY Our strategy
Our growth strategy
The a2 Milk Company’s strategic priorities and goals remain
largely unchanged since it undertook a holistic review of its
market, brand, product and distribution opportunities, which was
communicated to the market in October 2021.
The Company has clear goals in four stakeholder groups, People,
Planet, Consumers and Shareholders, to ensure that in addition
to achieving its commercial ambitions, it is also actively working
to deliver its sustainability priorities and is executing in a way
that further develops a trusted and transparent relationship with
its stakeholders.
The Company’s growth strategy centres on five key priorities:
© Invest in people and planet leadership: While the
Company’s primary commercial objective is to deliver its
full potential in China IMF, critical to doing so is ensuring it
has thriving, high performing teams to execute its strategy.
The Company has continued to invest in people leadership,
including through its constructive leadership programmes and
refreshing its values and behaviours. The Company elevated
investment in planet leadership to sit amongst its top strategic
priorities, by taking direct action with an ambition to lead the
industry, particularly in GHG emissions reduction, farming
practices and sustainable packaging. The Company is also
focused on supporting healthy ecosystems through initiatives
that contribute to nature positive outcomes.
© Capture full potential in China IMF: To achieve its
commercial ambitions, the Company remains primarily focused
on capturing its opportunity in IMF in the China market. To
accomplish this, the Company is increasing its control over its
CL and EL distribution, getting closer to consumers, continuing
to increase investment in its brand, and further investing in its
digital marketing and e-commerce capability.
© Ramp-up product innovation: While the Company has
historically been focused on a narrow product range, to
continue to drive growth in IMF and beyond, it will be
important to expand its portfolio both in CL and EL IMF, as well
as entering adjacent product categories in key markets.
© Transform the supply chain: Connected to its IMF and
innovation ambitions, the Company is working to transform
its supply chain. This includes a focus on obtaining additional
CL IMF registrations, increasingly leveraging its manufacturing
capability at Mataura Valley Milk Limited (MVM), partnering
with new suppliers to deliver new products and, over time,
developing its supply capability in China.
© Accelerate path to profitability for MVM and USA: To
maximise investment in China and to improve Group return
on sales, the Company needs to ensure it accelerates the path
to profitability for both the USA and MVM. The Company is
targeting achieving this during FY26 or sooner.
Purpose
Vision
Goals
Strategic
priorities
We pioneer the future of Dairy for good
An A1-free world where Dairy nourishes all people and our planet
PEOPLE
PLANET
CONSUMERS
SHAREHOLDERS
Create a safe, diverse,
inclusive and engaging
place for our people to
thrive, support our farmers
and contribute to our
communities
Protect our planet and
cows, rethink packaging,
achieve net zero and
become nature positive
Bring the unique benefits of
pure and natural a2 Milk™
to as many consumers as
possible
Create long-term, enduring
value for shareholders
and a trusted, transparent
relationship
1
2
3
4
5
Invest in people
and planet
leadership
– Invest in our people
to enable them to
thrive
– Take direct action
to lead the industry
in GHG emissions
reduction,
farming practices
and sustainable
packaging
Capture full
potential in China
IMF
– Gain more control
over CL and EL
distribution and
get closer to our
consumer
– Increase investment
in our brand, digital
marketing and
e-commerce
Ramp-up product
innovation
Transform our
supply chain
Accelerate path
to profitability
– Expand our CL and
EL IMF product
portfolios
– Enter adjacent
product categories
in relevant markets
to drive growth
– Expand CL
– Take action to
registered market
access
realise potential in
USA
– Utilise MVM and
invest in New
Zealand capability
– Develop China
supply capability
over time
– Expedite insourcing
of a2™ product
and 3rd party
volume to
significantly
increase MVM
utilisation
Enablers
Quality & Service
Brand strength
Science & Innovation
Strategic relationships
Values
Bold passion
Ownership & agility
Leading constructively
Disruptive thinking
21
ANNUAL REPORT 2023 CEO’s year in review
OUR STRATEGY CONTINUED
Financial statements
Financial measures of success
Non-financial measures of success
The Company’s medium-term ambition is to grow sales from
$1.2 billion in FY21 to approximately $2 billion by FY26 or later
and to improve EBITDA margins in the ‘teens’. The sales ambition
is expected to be predominantly driven by growth in CL and EL
IMF as well as other nutritional products sold in China.
The key drivers for the sales growth are:
© Increasing share of CL IMF nutrition
© Supporting EL channel recovery post COVID-19 and gaining
channel share
© Growing other dairy and nutritional products in China through
innovation and distribution growth
© Growing in existing and new emerging markets
© Expanding in milk and adjacent categories in ANZ and the USA
The Company’s ambition is to improve EBITDA margins over time
and is targeting EBITDA margins in the ‘teens’ in the medium-
term. This will depend on a range of factors, including China IMF
market conditions and channel dynamics, mix of business (IMF
channel mix and overall product mix), investment levels in brand
and capability, timing and investment required to deliver the
Company’s priorities around its supply chain transformation, and
achieving profitability in the USA and at MVM.
There are also key macro uncertainties that may impact the future
outlook, including:
© How the China birth rate evolves and the impact policy
changes may have on this
© The extent and pace of recovery in cross-border trade post
COVID-19 disruptions
© How the competitive landscape will evolve in China following
the new GB registration process
© The extent and pace of change in consumer product and
channel preferences
© How the China regulatory framework and international
relations may evolve and impact trade
Because of these uncertainties, it is difficult to define future state
targets and when they will be achieved – the path is also unlikely
to be linear. Accordingly, future results may be materially different
to the Company’s ambition.
The Company is also focused on several medium-term non-
financial measures of success, as summarised in the image below.
People: The Company is committed to creating a safe and highly
diverse and inclusive environment for its people. The Company’s
ambition is to be an employer of choice in the industry by creating
a fulfilling employee engagement experience that enables
employees to thrive personally and professionally. To facilitate
this ambition, the Company is targeting below 10 for its safety
total recordable injury frequency rate (TRIFR) with continuous
improvement, improving its employee engagement score to above
80%, and maintaining its diversity and inclusion rating.
Planet: The Company is committed to minimising its impact on
the planet and becoming a more sustainable business across a
broad range of areas. On emissions, this includes targeting net
zero emissions for Scope 1 and 2 by 2030 and Scope 3 by 2040
and a reduction in Scope 3 by 30% (per tonne of milks solids),
by 2030. For on-farm and other impact areas, this includes
targeting 100% completion of Farm Environmental Plans and
Certified Animal Welfare Programmes by the end of calendar year
2023, and targeting 100% reusable, recyclable or compostable
packaging with 50% average recycled content by 2025.
Consumers: The Company has also set brand health, market
share, innovation and supply chain targets to deliver on its
Consumer goals.
For brand health, the Company is targeting greater than 25%
for unprompted awareness in China, household penetration of
16% in Australian fresh milk, and household penetration above
3% in the USA in the premium milk segment.
For market share, the Company is working to become a top five
China label IMF player with greater than 5% market share and
to have the leading English label IMF range with market share for
that range of greater than 25%. For its liquid milk business, the
Company is targeting greater than 15% market share in Australia
and greater than 5% in the premium milk segment in the USA.
For innovation, the Company is looking to drive $200 million in
incremental revenue from dairy and other nutritionals in China
while also driving 25% of sales from new products in Australia
and the USA.
For supply chain, importantly, the Company is also looking to
secure three or more China label IMF registrations. The Company
targets to maintain the highest food safety and quality standards,
improve supplier and customer service levels, tightly manage
inventory levels and constantly improve supply chain efficiency.
22
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Medium term measures of success
On track
Work in progress
GOALS
CONSUMERS
PEOPLE
PLANET
Brand Health
Market Share
Innovation
Supply Chain
SHAREHOLDERS
1
2
3
4
5
6
7
Safety
TRIFR1
Engagement
Diversity &
Inclusion
GHG
emissions
reduction
Environmental
plans on farms
Animal
welfare
programmes
Sustainable
packaging
China
MBS share
China other
Access
unprompted
brand
awareness
AU household
penetration
USA
household
penetration
DOL share
CBEC share
O2O + Daigou
share
Australian
fresh milk
share
USA premium
milk share
dairy /
nutritionals
growth
Emerging
markets
development
USA sales
from new
products
ANZ sales
from new
products
to ≥3 CL
registrations
CL inventory
management
EL inventory
management
Quality
outcomes
Supply chain
efficiency
1. Total Recordable Injury Frequency Rate (TRIFR)
Medium-term
sales ambition
of ~$2.0b
(≥FY26)
EBITDA
margin goal
in the ‘teens’
targeting
year-on-year
improvement
USA
profitability
during FY25/
FY26
MVM
profitability
during FY26
23
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Our reporting approach
The Company believes that by further integrating its
reporting, it will benefit stakeholders by providing
a more complete picture of how it continues to create
and preserve long-term value.
At its core, the integrated reporting concept refers to a
principles-based, multi-capital framework in which companies
can communicate clearly and concisely about how their strategy,
governance, performance, and prospects create value in the
context of their external environments.
One of the Company’s goals is to ensure that it creates long-term,
enduring value for shareholders through a trusted, transparent
relationship. A move towards integrated reporting is one of the
ways the Company is seeking to achieve this.
The Company notes the recent developments in this space,
and in particular the publication of New Zealand’s first Climate
related standards in December 2022 from the External Reporting
Board (XRB). The XRB standards were guided by the International
Sustainability Standards Board (ISSB) exposure drafts, which were
released in March 2022 and formally published in June 2023.
It is expected that this will result in a more definitive approach
for companies to follow with regard to integrated reporting. This
report has been prepared with reference to the XRB and ISSB
standards and considers the integrated reporting principles.
During FY23 the Company continued to assess materiality,
informing the Company on which topics to prioritise and report
against, whilst building on its strategic priorities and aligning with
the needs and expectation of its stakeholders. The materiality
assessment included stakeholder interviews, peer benchmarking
and alignment to the United Nation’s Sustainable Development
Goals (SDGs), The Global Reporting Initiative (GRI) and The
Sustainability Accounting Standards Board (SASB) standards.
The Company also acknowledges the increasing expectation of
internal and external stakeholders to ensure non-financial metrics
disclosed externally are done so with a similar level of rigour to
financial reporting. Over the past several years the Company has
taken steps to improve the robustness of its internal processes to
capture and report non-financial data to be included in external
materials. For FY23, the Company has received limited assurance
for many of the key non-financial metrics included in this report.
For further information, please see ESG assurance report on
page 81 from Ernst & Young.
The Company will endeavour to continue assessing stakeholder
requirements and expectations along with the reporting
requirements in all jurisdictions in which it operates.
24
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
Progress towards our goals
PEOPLE
Create a safe, diverse, inclusive and engaging place
for our people to thrive, support our farmers and
contribute to our communities.
SUSTAINABLE DEVELOPMENT GOALS
SDG 5: Gender equality
Target 5.5
SDG 8: Decent work and
economic growth
Target 8.2
25
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Targets and commitments
<10
Safety TRIFR with continuous improvement
>80%
Engagement
Rated >4 out of 5
Diversity and inclusion
a2MC team members supporting our communities:
Row 1 L-R: China team supporting Operation Smile, Laptop
donations to KidsCan sponsored school in Mataura
Row 2 L-R: Auckland team members volunteering at KidsCan
warehouse, Melbourne team volunteering at Foodbank Victoria,
Boulder team volunteering at Boulder Shelter for Homeless
Row 3 L-R: Melbourne team volunteering for Landcare, Sydney
team volunteering for Foodbank NSW, China team supporting
Operation Smile
26
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Passionate and thriving team
The Company is committed to creating a safe and highly diverse and inclusive environment for its people.
The Company’s ambition is to be an employer of choice in the industry by creating a fulfilling employee
engagement experience that enables employees to thrive personally and professionally.
To facilitate this ambition, the Company focuses on health and
safety, invests in leadership, promotes the employee experience,
fosters a learning environment, and celebrates diversity
and inclusion.
© Provided free access to all team members and their families to
resources and tools promoting mindfulness, meditation and
mental wellbeing.
© Conducted health and wellbeing expos across Australia and
During FY23, the Company launched various initiatives to deliver
on its ambition and to achieve engaged and effective teams who
create long-term value for the Company and its shareholders.
FY23 progress
Health, safety and wellbeing
© All worksites continued to focus on managing critical risks and
promoting a safety culture through leadership and education
across all sites. Manufacturing teams continue to focus on
managing critical risks, including the use of external resources
where appropriate.
© Reported a Total Recordable Injury Frequency Rate (TRIFR)
of 6.1, which was an improvement on the prior year. This
included team members from all the Company’s sites (including
contractors).
© Continued to provide employee assistance programme
resources to team members across all geographies.
© Further developed health and safety reporting.
New Zealand worksites and virtually.
Investment in leadership
© Relaunched a renewed set of our Company values and
standards of behaviour, reflecting the input and contributions
of over 200 team members across all worksites.
© Embedded the Lifestyles Inventory (LSI) tool to provide a
common leadership language and support the development of
leadership capability and effectiveness.
© Launched a Roles and Goals model for role clarity and a
quarterly focus on goal achievement and leadership behaviours.
© Continued to roll out the 'Thrive' constructive leadership
programme to senior leaders, to support the development of
leadership effectiveness and constructive ways of working.
© Delivered Situational Leadership training for leaders at all levels
to provide an integrated and practical approach to effective
leadership styles.
© Implemented 'Compass', a global Human Resources
Information System (HRIS) building on the Company’s ERP
platform.
KEY METRICS DATA (FY23)1
GENDER (AS AT 30 JUNE 2023)
COHORT
MALE
Directors2
Executive Leadership Team2
People Leaders3
Remaining Team Members
Total
7
10
118
331
465
4
7
64
154
228
%
57%
70%
54%
47%
49%
FEMALE
3
3
54
177
237
%
43%
30%
46%
53%
51%
AGE (AS AT 30 JUNE 2023)
NUMBER
Under 30
30 to 50
Over 50
Total
56
310
99
465
TENURE (AS AT 30 JUNE 2023)
NUMBER
0–2 Years
2–5 Years
5+ Years
Total
217
190
58
465
1 All values subject to rounding
2 David Bortolussi has been included in both the Director and ELT calculations
3 a2MC defines People Leaders as any Team Member with direct reports
%
12%
67%
21%
100%
%
47%
41%
12%
100%
VARIANCE TO LAST YEAR
(% FEMALES)
-7%
5%
13%
-2%
+2%
VARIANCE TO LAST YEAR (%)
0%
-1%
1%
VARIANCE TO LAST YEAR (%)
3%
-3%
–
27
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Reward, recognition and training
© Continued to embed the Company’s global reward and
recognition platform 'LegenDairy' across all geographies. The
platform provides wellbeing and rewards, recognises tenure and
also provides an opportunity to celebrate the many examples
of individuals and teams who are going above and beyond in
delivering the Company’s strategy and living its values.
© Celebrated and recognised monthly nominees for
our a2 Legends awards.
© Celebrated annual a2 Legend of the Year award.
© Launched Udemy and Masterclass which provide
educational platforms to enhance and support online
learning and development.
© Implemented a Work from Anywhere policy to support all
team members in leveraging flexible work for up to two
weeks a year.
Recruitment
© Launched the Company’s corporate induction programme.
The purpose of the programme is to equip team members
with an understanding of the Company’s history, purpose,
vision, strategy, and values along with the experience of visiting
a farm, production site and retailers.
© Upgraded external website capability with Careers at a2,
showcasing Working at a2 and providing future team members
with an understanding of the Company’s purpose, vision,
strategy, values and benefits, as well as current role vacancies.
© Embedded talent acquisition partnership with an external
provider as an integrated talent function in the ANZ business.
© Updated internal systems, resulting in a centralised team
member information centre for the Company.
© Evolved the operating model and organisational design
to optimise delivery of our strategic objectives.
© Launched an online recruitment module at Mataura Valley Milk
to support a better candidate experience.
Supporting a diverse and inclusive workplace
© Introduced an additional five days of paid women’s health leave
for team members experiencing symptoms of endometriosis,
peri-menopause or menopause as well as those individuals
undertaking fertility treatments, including IVF. a2MC recognises
that there are days when these symptoms and treatments
interfere with an individual’s ability to work.
© Introduced an on-demand platform to support team members
managing childcare and tutoring in New Zealand and Australia.
Next steps
© Continue to roll out constructive leadership training programme
across the Company.
© Enhance current benefits to strengthen the Company’s value
proposition for a2MC team members and attract new talent.
© Implement refined Workplace Health and Safety
Management System.
© Implement ‘Thrive’ leadership programme with next
level leadership.
Xiao Li, Chief Executive Officer – Greater China, presenting Felix
Liu, Trade Marketing Director – China, with a2MC 2023 Legend
of the Year Award
28
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Anti-modern slavery
Green Teams
The Company’s values and principles have an impact
well beyond its own operations. The Company believes
in the vital role business plays in upholding human
rights and considers it a basic responsibility to ensure
that individuals, communities and the environment are
treated with respect.
The Company is committed to high standards of responsible
conduct, social responsibility and sustainability in all areas of the
business, including operations and supply chain. The Company’s
commitment comes not just from an acknowledgement
that it is the right thing to do, but from a recognition that
the manner in which the Company and its partners manage
social, environmental and economic impacts is critical to long-
term success. The Company released its third Modern Slavery
Statement under the Modern Slavery Act in December 2022
which is available at www.thea2milkcompany.com/ESG-reporting.
The Company has Green Teams across each of its
offices and worksites which focus on improving the
sustainable practises of the offices and worksites.
Green Teams engage and educate the wider team in
sustainability initiatives. A 'People and Planet Legend'
award was established through the Company’s reward and
recognition platform, ‘LegenDairy’ to recognise achievements
in this space. A green office policy was also implemented by
the Green Teams, outlining the Company’s expectation of its
team members in respect to sustainable management of its
offices. Additional initiatives have included:
© Enhancing onsite recycling, including e-waste.
© Hosting clothing drops, clean ups, and lunch and learn
sessions.
© Exploring low impact alternatives such as trialling the use
of electric vehicles by the sales team.
FY23 progress
© Adopted an anti-modern slavery response protocol with a
focus on governance, risk mapping, supplier engagement and
grievance mechanisms and reporting.
© Adopted an anti-modern slavery remediation plan which sets
out the steps the Company is to take in the event it discovers
any modern slavery in its supply chain.
© Prepared an anti-modern slavery questionnaire and conducted
analysis of all suppliers to determine approach to roll out
questionnaire. The questionnaire will be rolled out progressively
initially to suppliers that are categorised as higher risk.
© Received signed ‘Pledge against modern slavery‘ from USA
farmers and seeking the same from Canadian farmers.
© Continued to conduct further work across the Company’s
supply chain, with a focus on modern slavery risks across both
the Company’s own supply chain and indirect operations.
© Continued to refine existing training programmes for all
employees and the Company’s on-farm suppliers.
Next steps
© Analyse modern slavery risks with key suppliers’ supply
chains and operations.
© Update agreements with farms providing raw A1 protein
free milk to include a commitment to operate slavery free.
© Continue roll out of modern slavery questionnaire
with suppliers.
Reconciliation Action Plan
The Company recognises the importance of reconciliation
between First Nations peoples and non-indigenous peoples in
Australia and in FY23 formally commenced its reconciliation
journey by committing to the Reconciliation Action Plan (RAP)
framework established by Reconciliation Australia.
FY23 progress
© Published the Company’s ‘Reflect’ RAP.
© Partnered with Yarnnup, an Aboriginal advisory firm, and
commenced action towards the deliverables set out in the RAP.
Our Company artwork:
Respecting Together –
Elaine Chambers
29
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
The a2 Milk Company
is supporting
communities to thrive
Operation Smile (China)
About 25,000 babies born in China each year suffer from
cleft lip palate. Corrective surgery can help to transform
those children’s lives – but they cannot undergo surgery
until they achieve the requisite ‘health standard’, which
includes weight targets. The Company partnered with
Operation Smile during the year to provide corrective
surgery and nutrition products to 300 children suffering
from cleft lip palate, before and after their operations. With
more than 6,000 medical volunteers from around the world,
Operation Smile is one of the world’s largest volunteer-
based not-for-profit organisations.
Enriching communities
The Company recognises that it has a responsibility to
support and contribute to the communities in which it
operates. a2MC strives to make a difference by helping
communities thrive and supporting organisations that
are helping to create a brighter future for children and
families, and the Company’s farming communities.
The Company has developed a community support framework to
guide how to engage, invest in, and give back to the communities
in which it operates, act on relevant social issues, and contribute to
other programmes that are aligned to the Company’s purpose and
which team members are passionate about.
Support takes the form of funds and product donations to help
communities, as well investments of time from the Company’s
people to work directly with partner organisations.
As a business founded on innovation, the Company believes that
science plays an essential role in enhancing the health and wellbeing
of communities over time and by harnessing science, the Company
can deliver superior outcomes for its consumers.
FY23 progress
$2.84m* in product and cash donations, including:
Volunteering support
In FY23, team members across various regions donated 334 hours
of time to different organisations. This included packing lunch
orders for KidsCan in New Zealand, packing and sorting food at
Foodbank in Australia, stocking supplies at the Boulder homeless
shelter and volunteering at Operation Smile in China.
Proactive support
© KidsCan (New Zealand)
© Foodbank School Breakfast Program (Australia)
© Feed the Children (USA)
© Operation Smile (China)
Event-based (or reactive) support
© KidsCan milk powder for cyclone and flood affected families
(New Zealand)
© Victorian floods farm support (Australia)
© GIVIT natural disaster relief cash donation (Australia)
Additional farming community specific programmes and
support
© a2™ Farm Sustainability Fund, in partnership with
Lincoln University
© Surfing for Farmers
© Sustainable Agriculture Landcare Grants
© Bale Up Conference support
*
Donations figure includes the cost value of donated products and any
donation of cash (NZD) to communities, organisations, farmers and
individuals
30
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter $2.84m* in product and
cash donations to help
communities thrive
Foodbank (Australia)
The Company has supported Foodbank with fresh milk product
donations in New South Wales and Victoria since 2015, scaling
up support in times of heightened need. In FY23, support was
increased by providing a cash donation to support the Foodbank
School Breakfast Program. The Company also donated a2 Milk®
products to Foodbank through the National Donor Partnership.
The School Breakfast Program provides a healthy breakfast for
school children who would otherwise go without, and delivers
important benefits for students across a broad range of physical
and mental health outcomes, including energy levels and
concentration. Through this donation, the Company was able
to support Foodbank to provide over 40 schools in some of
Australia’s most remote Indigenous communities with access to
the School Breakfast Program.
31
KidsCan (New Zealand)
The Company is proud to partner with KidsCan, providing New
Zealand children with the essentials to help them participate in
learning and have the opportunity for a better future. In addition
to the partnership, the Company donated milk powders to
KidsCan to support families affected by floods and cyclones.
KidsCan is New Zealand’s leading charity dedicated to helping
New Zealand children affected by poverty. The Child Poverty
Monitor in New Zealand shows 11.0% of all children living in
households in material hardship regularly go without essentials.
The Company is a major partner of KidsCan to help support low
socio-economic early childhood education centres across New
Zealand to provide children attending those centres with food,
clothing, and health products. In FY23, the support increased by
providing a donation of 7 laptops to a KidsCan sponsored school.
a2MC supports KidsCan’s belief that education is a child’s ticket
out of poverty and that children struggle to learn when they are
cold or hungry.
Feed the Children (USA)
The Company partnered with Feed the Children in the USA to
help provide struggling families the supplies they need to send
their children back to school with confidence. The combined
health and economic crises of COVID-19 continue to cause
hardship. It is estimated that one in eight children in the
USA suffer from food insecurity. In June 2023, the Company
donated funds to provide food and supplies to school children,
giving children what they need to do and be their best.
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
PLANET
Protect our planet and cows, rethink packaging, achieve
net zero and become nature positive.
The relationships the Company has with farmers and the natural
systems in which it operates are pivotal to its success and long-
term value creation. The Company continues to work with
farmers to promote strong animal welfare practices, put in place
farm environmental plans, and invest in on-farm programmes
to support farmers in adopting practices that will contribute to
a sustainable future. These key initiatives support the natural
resources utilised by the business.
The impact of climate change and the reliance on natural
resources is driving significant structural transformation across the
dairy sector. The Company is actively looking at ways to reduce its
impact on climate and focus on sustainability more broadly.
SUSTAINABLE DEVELOPMENT GOALS
SDG 2: Zero hunger
Target 2.4
SDG 6: Clean water and sanitation
Target 6.3 and 6.4
SDG 12: Responsible consumption
and production
Target 12.2
SDG 13: Climate action
Target 13.2
SDG 15: Life on land
Target 15.3
32
THE a2 MILK COMPANY
PROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Nature
The natural environment plays an essential role in the production of a2 Milk™ products. The reliance on natural
resources is driving an important shift in the way that companies manage and assess the impact they have on the
natural environment.
Targets and commitments
100%
of farms supplying raw A1 protein free milk to be certified under
an upgraded animal welfare programme by the end of CY23
In FY23, the Company undertook its first two nature risk and
opportunity assessments covering two regions in New Zealand,
Canterbury and Southland, where the largest A1 protein free
milk pools supplying the Company are based. These regions also
represent a significant proportion of the Company’s supply chain
footprint, in particular from a production perspective. These two
pilot assessments confirmed the need for the Company, with its
strategic partners and suppliers, to focus on the key risks and
opportunities around:
100%
of certified farms supplying raw A1 protein free milk to have a
farm environmental plan in place by the end of CY23
© Water quality and use
© Soil quality
© Biodiversity
© Climate (as an element of nature)
45%
reduction in nitrogen loss to waterways per kilogram of milk solids
by 2030 for farms in the Canterbury region supplying milk for
a2MC's IMF production, from a FY18 base year
Continuing to review
additional water, waste and biodiversity targets as part of work on
nature risk and opportunity assessment
The dairy sector has an extraordinary opportunity to lower
its impact on the natural environment and the Company is
committed to delivering a positive contribution to biodiversity,
water and soils. These are critically important issues to the
Company, its strategic partners, as well as governments and
regulators in the countries in which it operates. The Company
believes this will also become increasingly important as consumers
become more attuned to nature impact.
The Company acknowledges the work being undertaken with
respect to the Taskforce on Nature-related Financial Disclosures
(TNFD) which is focused on developing a risk management and
disclosure framework for organisations to report and act on
evolving nature-related risks, with the aim of supporting a shift in
global financial flows away from nature-negative outcomes and
toward nature positive outcomes.
In a similar way to the Company voluntarily aligning its climate
disclosures to the Taskforce for Climate-related Financial
Disclosures (TCFD), which included reporting impacts for the first
time in FY22, the Company will aim to align to TNFD over time.
The Company also has targets related to GHG emissions
reductions, farm environmental plans, animal welfare and
sustainable packaging which the Company believes will also
contribute to nature positive outcomes. In reviewing the
Company’s supplier targets, the Company has aligned to its IMF
manufacturer on nitrogen loss targets, an initial step towards
introducing nature related targets. The Company will consider
both the Science Based Target Network (SBTN) and the Science
Based Target Initiative for Forest, Land and Agriculture (SBTI FLAG)
when setting additional nature targets.
FY23 progress
© Conducted nature risk and opportunity pilot assessments where
the largest A1 protein free milk pools supplying the Company
are based.
© Established a partnership with Lincoln University in New
Zealand and commenced a research project aiming
to strengthen on-farm resilience and deliver positive
environmental outcomes.
© Commenced nature-related on-farm measurement pilot studies
connected to the a2™ Farm Sustainability Fund programme in
New Zealand.
Next steps
© Progress towards aligning to and reporting against the TNFD
framework.
© Extend the nature-related on-farm measurement pilot studies
connected to the a2™ Farm Sustainability Fund programme in
New Zealand.
© Extend nature-related targets for other key risks and
opportunities and for additional operating regions.
© Report against initial water use and quality targets.
33
SDG 2: Zero hunger
Target 2.4
SDG 6: Clean water and sanitation
Target 6.3 and 6.4
SDG 13: Climate action
Target 13.2
SDG 15: Life on land
Target 15.3
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Climate
Climate change is driving significant structural transformation across all sectors. There will also be extraordinary
opportunity for the agricultural sector to realise increased productivity and efficiency through new technologies and
practices that lower emissions and environmental impact across the supply chains, including a particular focus on
on-farm emissions.
At the same time, external reporting expectations and
requirements are increasing. This is highlighted by the introduction
of New Zealand’s XRB climate standards, the International
Sustainability Standards Board (ISSB), and the Australian Treasury’s
climate related exposure draft released in June 2023. The
Company believes it is well placed to report in line with upcoming
standards and legislation.
Targets and commitments
Net zero GHG emissions
for Scope 1 and 2 by 2030
Net zero GHG emissions
for Scope 3 by 2040
30%
reduction of Scope 3 emissions, per kilogram of milk solids,
by 2030, from a FY21 base year
a2MC NET ZERO GOALS AND ROADMAP
a2MC NET ZERO GOALS AND ROADMAP1
Our Roadmap:
Scope 1 and 2
Scope 3
BAU
GHG emissions net zero roadmap and GHG inventory
In FY23, the Company conducted a ’boundary review’ to ensure
completeness and accuracy over data for its Scope 1, 2 and
3 emissions. Following this, the Company developed its GHG
emissions net zero roadmap which illustrates the Company’s net
zero targets and how it plans to meet these targets over time.
The Company has commenced the process to have these targets
certified by Science Based Targets.
The Company is targeting net zero for Scope 1 and 2 emissions
by 2030 and has a target to achieve net zero by 2040 for Scope
3. The Company has also introduced an interim Scope 3 target
to reduce Scope 3 GHG emissions by 30%, per kilogram of milk
solids, by 2030, from a FY21 base year.
In addition to the roadmap, the Company has published a GHG
inventory report which shows the breakdown of Scope 1, 2 and
3 emissions. The purpose of the inventory report is to provide
transparency on the Company’s emissions profile as well as
communicate any estimation uncertainties and assumptions.
The GHG inventory report is available on the Company’s website
at www.thea2milkcompany.com/ESG-reporting.
By 2030 we will
reach Net Zero
for Scope 1 and 2
By 2040 we will
reach Net Zero
for Scope 3
Progressive Scope 1 and 2 emission reduction
Our Goals:
2021
2030
Net Zero (Scope 1 and 2)
30% intensity reduction (Scope 3)
2040
Net Zero
(Scope 1, 2 and 3)
1 The GHG emissions (tCO2e) summarised in the Net Zero Roadmap is shown as one scenario for the purpose of depicting potential emissions in the future. It should
not be interpreted or extrapolated as a view of any potential scenario related to the Company's financial performance or outlook.
34
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
GHG emissions reduction programme
Scope 1 and 2 emissions account for approximately 5% of the
Company’s total GHG emissions profile, with Scope 3 emissions
comprising the other 95%. The largest proportion of Scope 3
emissions is from on-farm activities.
FY23 progress
SCOPE 1: GHG emissions from direct operations
© Progressed the installation of a high-pressure electrode
boiler at MVM to replace existing coal-fired thermal heat
generation system.
SCOPE 2: GHG emissions from electricity operations
© Progressed the full electrification of the MVM site which
includes converting MVM to 100% renewable energy once
the boiler conversion is completed later in CY23.
© Continued to utilise green energy contracts at all available sites.
© Once these activities are complete, approximately 96% of the
Company’s electricity usage will come from renewable or green
energy sources.
SCOPE 3: Indirect GHG emissions
© Commenced methane abatement feasibility study on-farm,
with additional feasibility studies to commence in FY24.
© Continued research to support regenerative farming practices
through the partnership with Lincoln University.
Methane inhibitors
In FY23, the Company continued its work on methane abatement.
The Company currently has a feasibility study underway and is
planning to commence additional studies in FY24. The feasibility
study has required collaboration between the Company, feed
supplement providers, farmers, and other service providers. The
study has presented various challenges throughout the period,
providing opportunities for the Company to work with farmers
to ensure they are appropriately prepared. This has included
investing in on-farm infrastructure, methane emission data
capture software, animal health monitoring collars and providing
additional support where needed.
The Company is working with farmers, processors and feed
suppliers to ensure that in the future supplements are easily
accessible and ensuring animal welfare, maintaining the premium
quality of products and reducing Scope 3 emissions.
KEY METRICS DATA (FY23)1
GHG EMISSIONS2
Total GHG Emissions3
Scope 1
Scope 2 (Market based)4
Scope 2 (Location based)4
Scope 3
On-farm
Scope 1 and 2 energy consumption (Gj)
FY23
501,090
24,343
153
3,356
476,595
374,168
239,962
FY22
516,345
22,972
–
3,221
490,153
403,429
–
FY21
493,319
30,144
–
3,426
459,749
376,930
–
1 Numbers are subject to rounding.
2 Greenhouse gas emissions, calculated as tonnes of carbon dioxide equivalent (tCO2 e), have been estimated using considerations from The GHG
Protocol guidelines. 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 emissions. Total emissions calculations exclude
packaging. Refer to our GHG inventory report for details on estimations and assumptions used, which can be found at www.thea2milkcompany.com/
ESG-reporting.
3 Total GHG emissions for FY23 have been calculated using market based method for Scope 2.
4 A location-based method reflects the average emissions intensity of grids on which energy consumption occurs (using mostly grid-average emission
factor data). A market-based method reflects emissions from electricity that companies have purposefully chosen. It derives emission factors from
contractual instruments, such as green energy contracts.
35
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
How The a2 Milk Company is helping to support the planet
Matura Valley Milk boiler upgrade
FY23 progress
In March 2023, construction works for the MVM high-pressure
electrode boiler installation project commenced. The project
involves replacing the existing coal-fired boiler with a high-
pressure electrode boiler. The boiler will provide all the steam
needed for operations. Steam generation is an essential element
in milk products manufacturing, providing heat to enable the
drying of milk to powder. The coal-fired boiler contributed
to ~98% of a2MC's Scope 1 emissions in FY23. Once the
high-pressure electrode boiler is commissioned, the boiler and
MVM site will operate on 100% renewable energy, making it
highly efficient whilst emitting zero emissions and will be the
first of its kind in New Zealand. The Company is proud to have
invested approximately $16 million into the boiler and site
electrification project and is grateful to its fellow shareholder
China Animal Husbandry Group, and to the Energy Efficiency
and Conservation Authority for its $5 million co-investment in
the project under the New Zealand’s Government Investment in
Decarbonising Industry fund.
Water usage and efficiency
© Water usage and efficiency have been a focus for both facilities
in the FY23 period. Whilst water usage is decreasing, it is
heavily affected by product mix and the Company may see
fluctuations in water usage, particularly at MVM.
Waste and waste diversion
© Both sites have continued to focus on reducing waste on
site, with new initiatives at MVM being introduced, such as
increased recycling of cardboard.
Energy consumption
© Both facilities have continued to use green energy contracts,
with Smeaton Grange producing energy through solar panels.
Smeaton Grange had an increase in energy usage due to a new
product mix, with expectations to see a further increase in kWh
from FY24, at MVM, when the electrode boiler is complete.
OTHER ENVIRONMENT METRICS
Manufacturing Facilities1
Total water usage ('000 litres)
Water efficiency (litres/litre of milk)
Waste water diverted to beneficial land application (litres)
Waste produced (tonnes)
Waste diversion
Energy consumption (kWh)2
1 Manufacturing facilities include Smeaton Grange and MVM
2 Numbers have been rounded
36
FY23
FY22
290,908
331,288
1.7
2.0
2,780,010
2,902,950
100
96.7%
112
96.6%
16,700,000
16,800,000
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Thriving farms
Farmers play a vital role in the Company’s supply chain, not only as suppliers of the precious milk source for the
Company’s products but also as stewards of the environment and as vital contributors to local communities.
Animal welfare programme
Best practice standards for animal welfare on farms are central to
the responsible sourcing of raw A1 protein free milk.
The Company’s animal welfare programme meets globally
recognised frameworks for Animal Health and is evolving from the
Five Freedoms Model to the Five Domains Framework of animal
welfare.
a2MC’s approach to animal welfare is to drive improvement,
reduce risk and ensure farmers are welfare centric. This is achieved
through the combination of increased audits, wider audit scope,
milk monitoring, on-farm technology and training.
A number of extensions to the animal welfare programme were
developed in FY23, supporting farmers to establish systems for
continuous improvement in animal welfare and to further improve
programmes beyond the industry standard.
FY23 progress
© Continued roll-out of auditor and a2MC farm services team
training modules.
© Staged launch of upgraded animal welfare programme across
the Company’s regions.
© Successful roll out of updated audit scope and frequency.
© Redefined animal welfare programme with MVM ready to
launch.
© On target for 100% animal welfare certification by end
of CY23.
Next steps
© Progress towards global certification of the redefined
programme.
© Invest in education and value add initiatives for farmers.
In addition, the humane treatment of cows is of the utmost
importance. The Company is committed to working with and
supporting farmers to enable them to improve the impact on the
environment.
The work undertaken by the Company to better understand its
nature and climate risks and opportunities has highlighted the
need to take a holistic systems-based approach to regenerative
agriculture to be effective in driving towards nature positive
outcomes, including net zero targets.
Over the past several years, the Company has been working
towards its targets of having 100% of certified farms supplying
raw A1 protein free milk to having a farm environmental plan
in place and to be certified under an upgraded animal welfare
programme by the end of CY23. In addition to that, the Company
has developed programmes and services to engage with and
support farmers. This has included the development and support
of farmer grants programmes, on-farm measurement pilot
studies, research partnerships, methane inhibitor research, farmer
education programmes, and crisis support.
Farm environmental plans
The Company has developed a global framework for farm
environmental plans.
The principles of the framework address the most material aspects
of environmental management in the dairy industry:
© Lowering GHG emissions
© Managing water quality and efficiency
© Managing soil quality
© Boosting on-farm biodiversity
© Improving nutrient (effluent) management
FY23 progress
© On target to have 100% of certified farms supplying A1 protein
free milk with farm environmental plans (including MVM) by
end of CY23.
Next steps
© Progress towards 100% of certified farms supplying A1 protein
free milk in New Zealand having a Fresh Water Farm Plan.
ANNUAL REPORT 2023
37
CEO’s year in review
Financial statements
Research studies, partnerships and measurement pilots
The Company is committed to supporting the dairy industry by
working with technology and solutions providers to tackle some
of the major issues in the industry.
Farmer grants programmes
The Company has two established farmer grants programmes
operating in New Zealand and Australia – the a2™ Farm
Sustainability Fund and Sustainable Agriculture Landcare Grants.
As noted in the Climate section above, the Company has been
actively involved in methane inhibitor research. The Company
is also seeking to partner with research institutions on projects
that will advance science and technology solutions to contribute
to nature positive outcomes. Another of the major challenges in
agriculture where the Company is investing time and resources to
advance the accurate measurement of on-farm data.
FY23 progress
© Commenced methane inhibitor feasibility study in Victoria,
Australia.
© Commenced roll out of on-farm carbon audits for certified
farms.
© Completed pilot of farm environment plans in Australia, with
final tool available to farmers.
© Established a research partnership with Lincoln University and
commenced a research project aiming to enhance on-farm
resilience and deliver positive environmental outcomes.
Next steps
© Continue methane inhibitor feasibility study in Victoria,
Australia and commence additional feasibility studies.
© Continue measurement pilot studies in Australia and
New Zealand.
© Expand carbon audits to certified farms in North America.
© Continue research partnership and research project with Lincoln
University.
These programmes offer financial awards to contracted A1 protein
free dairy farms to support projects that demonstrate an
integrated approach to a sustainable future.
The a2™ Farm Sustainability Fund is a collaboration between the
Company and Lincoln University, while the Sustainable Agriculture
Landcare Grants are a partnership with Landcare Australia,
both with a vision to protect, enhance or restore the natural
environment. Both programmes allow A1 protein free farms to
apply for grants to fund farming practices that align with the
Company’s sustainability objectives and one or more of its key
environmental improvement themes:
© Lowering greenhouse gas emissions
© Increasing on-farm carbon sequestration
© Improving farm system resilience
© Improving water quality and efficiency
© Enhancing on-farm biodiversity
© Animal wellbeing/health
© Managing and improving soil health
© Expanding blue/green infrastructure e.g. living things (soil/trees/
diverse pasture)
The programmes each have an investment committee with
independent representatives assisting in the evaluation and
awards process to farmers. The Company is grateful to Lincoln
University, Landcare Australia and the members of the investment
committees for their support of these programmes.
FY23 progress
Twenty-three awards totalling approximately $440K made under
the a2™ Farm Sustainability Fund in round 2 of the programme.
Eight awards totalling $250K made under the a2 Milk® Sustainable
Agriculture Landcare Grants in round six of the programme.
Next steps
© Continue to support the a2™ Farm Sustainability Fund and
Sustainable Agriculture Landcare Grants, with a focus on
sustainable farming practices.
© Establish farmer grant programme in the USA.
Lincoln University research partnership
The Company has established a partnership with Lincoln
University in New Zealand and commenced a research project
aiming to enhance on-farm resilience and deliver positive
environmental outcomes. Lincoln University is a specialist
agriculture-based tertiary institution and is committed to being
an exemplar of sustainable practices for the land-based sector
and ecosystems within it. The research project will be conducted
over a three-year period and is focused on GHG reduction, soil
health and water quality and the Company has engaged with
some of its supplier farms to participate in the research.
38
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Sustainable packaging
Sustainable packaging is an important element in the Company’s ambition to protect the planet. It is also an
increasingly important area for many stakeholders, including consumers. The Company has a vision for as much of its
packaging as possible to be reusable, recyclable or compostable.
Targets and commitments
100%
reusable, recyclable, or compostable
packaging by 2025
70%
plastic packaging being recycled
or composted by 2025
50%
average recycled content included
in packaging by 2025
Phase out
of problematic and unnecessary single-use plastics
packaging by 2025
Achieving this will require a region-by-region and product-by-
product approach over time. In the latest year there was a focus
on products sold in Australia and New Zealand. Australia first
introduced the ‘2025 National Packaging Targets’ in 2018 and
updated them in 2020. The targets require a complete and
systemic change to the way Australia creates, collects and recovers
product packaging, and are an important step on the country’s
journey towards a circular economy for packaging.
The targets are overseen by the Australian Packaging Covenant
Organisation (APCO) which recently completed a review into the
2025 targets. The report written by APCO on the 2025 targets
noted that in order to meet the targets, collaboration across
the entire packaging system is needed and APCO is focusing its
resources on helping business bring the system together. In 2021,
a2MC became a signatory to the Covenant, strengthening the
Company’s long-term commitment to sustainable packaging. As
a signatory to the Covenant, a2MC is required to report on its
progress on an annual basis and to publish its action plan. This
covers all Australian sales which captures a significant proportion
of the Company’s product portfolio including IMF. During the year,
the Company extended and aligned its sustainable packaging
targets to APCO targets for products sold in all markets.
FY23 progress
© Fully recyclable packaging reduced from 90.2% in FY22 to
87.1% in FY23. This reduction was due to increased production
of UHT products. However, alternative packaging solutions
are being investigated through the long-term sustainable
packaging roadmap project to meet the ‘2025 National
Packaging Targets’.
© Developed the Company’s sustainable packaging roadmap.
© Submitted its second APCO Annual Report.
© Continued to investigate innovative packaging design for
sustainable solutions.
© Maintained an APCO rating of ‘Leading’.
Next steps
© Continue executing against the APCO action plan and make
progress against sustainable packaging targets.
© Explore options for inclusion of recycled content in milk
containers in Australia.
39
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
CONSUMERS
Bring the unique benefits of pure and natural a2 Milk™
to as many consumers as possible.
The Company’s trusted brand, its proprietary know-how and
A2 beta-casein expertise are valuable assets. The Company is
committed to ongoing investment to maintain and sustainably
grow these assets. In addition, the Company is focused on
responsibly marketing to consumers, delivering products that are
safe and of high quality.
Through ongoing investment into scientific research and
development programmes, the Company is deepening its
expertise and advancing global understanding of the potential
health benefits of a2 Milk™. This science will underpin our future
product innovation, bringing the benefits of a2 Milk™ to a
broader audience of consumers.
The Company’s premium brand is strengthening in awareness,
penetration and loyalty to varying levels across its key markets. It
has increased its investment to grow and protect its brand and its
trade marks in all product categories and regions.
There are three key focus areas to ensure the Company can
continue to deliver a targeted and differentiated brand proposition
and product portfolio:
© Build and strengthen brand adoration
© Create a distinctive product portfolio
© Invest in science, nutrition and beta-casein education
SUSTAINABLE DEVELOPMENT GOALS
SDG 3: Good health and wellbeing
Target 3.4
SDG 9: Industry, innovation and
infrastructure
Target 9.1
SDG 12: Responsible consumption
and production
Target 12.5
40
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Build and strengthen brand adoration
The Company is committed to increasing investment levels to
improve brand equity in its key markets of China, ANZ and the
USA. The Company targets consumers who experience perceived
discomfort consuming products that contain A1 beta-casein protein
as well as progressive and health-conscious consumers who are
drawn to the differentiated and quality proposition that a2MC
delivers. When targeting consumers who would otherwise limit
their consumption of dairy products or avoid them altogether, the
Company’s marketing approach emphasises the potential health
and well-being benefits of its branded products. a2MC aims to
‘welcome these consumers back to milk’. Many consumers and
healthcare professionals report that people who experience digestive
issues drinking regular cows’ milk may experience benefits when
they switch to a2 Milk™.
Create a distinctive product portfolio
The Company is committed to innovation and continuing the
growth of its distinctive product portfolio. The Company’s product
portfolio is based around the benefits of products made from milk
that contains only A2-type protein and no A1. The product portfolio
can be divided into three core categories: liquid milk, infant milk
formula and macro milk. Each is positioned in the premium segment
of their respective categories. The Company’s approach to growing
and innovating its products varies within each market in which
it operates – adapting to local consumer preferences, category
nuances, channel dynamics, regulatory requirements and overall
category maturity.
Invest in science, nutrition and A2 protein science
education
As the pioneer of the A2 protein science, the Company is also the
custodian of the category.
The Company’s science priorities have always aligned with its
business strategy, and most importantly, its consumer needs.
Science, and the newly created nutrition function, are enablers to
support growth and delivery of key strategic priorities, and decrease
risk to the business. The Company is increasing its investment in
strengthening its global leadership in A1/A2 beta-casein research.
Key strategic priorities include:
© Continue to strengthen the evidence supporting digestive
and broader gut health benefits of a2 Milk™.
© Expand research to explore the immune and cognitive
benefits of a2 Milk™.
© Expand on research across different life-stages.
Overall, with research being undertaken in China, ANZ and
USA, and with the integration of the science and nutrition
functions, a2MC will expand its scientific credibility, knowledge
and understanding of the A1/A2 protein science, enabling it to
communicate the functional story in an innovative manner.
a2 Centre of Research Excellence™
To strengthen its category leadership the Company is investing
in the a2 Centre of Research Excellence™ (a2 Core™).
The objective of a2 Core™ is to centralise research expertise
and education that will:
© Build credibility for A1/A2 protein science.
© Promote academic partnerships and industry collaborations
to define and shape the A1/A2 protein category.
© House research summaries, scientific references and education
materials for consumers, academics and health care professionals.
FY23 progress and next steps
The Company increased marketing investment by 13.1% in FY23
primarily reflecting a significant step-up in China above-the-line
brand investment as well as below the line activation in line with
its refreshed growth strategy. The focus into FY24 will be on
awareness and penetration.
FY23 regional highlights
China
© Continued to reach new highs for brand health
metrics, particularly in awareness with improvements
in loyalty.
© Launched new brand positioning campaign ‘a2 Milk™
Base Matters’.
© Relaunched EL a2 Platinum® with a dedicated
integrated marketing campaign, which received a
Gold Award at the most recent China International
Advertising Festival.
© Disruptively launched new campaign heroing fresh
a2 Milk™ and a2 Milk™ powder.
© Increased investment in digital marketing, and
expanded into emerging online channels.
© Launched new products, fresh a2 Milk™ low fat 1L
and a2 Nutrition for Mothers™.
© Expanded offline distribution in lower tier cities –
a significant driver of offline growth.
© Continued to drive a2™ brand preference and
strengthened brand reputation through meaningful
community campaign (Project Smile).
41
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
International
© Delivered material improvements in brand engagement,
following increased brand support to resellers, and direct
engagement with daigou.
© Executed the transition to refreshed a2 Platinum® IMF
product across all English label channels, with multi-
channel marketing campaigns including the in-person
relaunch in Australia and digital consumer focused
campaigns in China.
© Launched "Little Tummies Love" campaign for
a2 Platinum®.
© Launched upgraded Smart Nutrition® fortified children’s
milk and premium a2 Milk™ Powder Tub format.
© Continued to experience growth in both the CBEC and
offline to online (O2O) channels.
USA
© New marketing campaign launched to drive
increased awareness and new consumers to brand.
© Received FDA enforcement discretion approval to
import a2 Platinum® IMF product (0–12 months).
© Continued to expand product portfolio with the
launch of a2 Milk® Protein + Collagen nutritional
powders and a2 Milk® Grassfed liquid milk.
ANZ
© Launched a2 Milk® Lactose Free in Australia in August 2022 and achieved the highest value launch in the
dairy milk category for CY22 with over 1 million units sold in the Australian market in the first nine months.
© a2 Milk® products achieved rankings in the top ten products in the dairy category in Grocery.
© Continued to invest in brand and in ensuring strong in-market presence.
© Brand health metrics improved during the period.
© Brand leadership maintained with increased loyalty and household penetration.
© Largest brand advertiser in the fresh milk category in Australia.
42
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Medium term measures of success
MARKETING INVESTMENT INCREASED1
On track
Work in progress
CONSUMERS
Brand Health
Market Share
Innovation
Supply Chain
China
MBS share
China other
Access
unprompted
brand
awareness
AU household
penetration
USA
household
penetration
DOL share
CBEC share
O2O + Daigou
share
AU fresh milk
share
USA premium
milk share
dairy /
nutritionals
growth
Emerging
markets
development
USA sales
from new
products
ANZ sales
from new
products
to ≥3 CL
registrations
CL inventory
management
EL inventory
management
Quality
outcomes
Supply chain
efficiency
121
29
18
FY21
USA
% of sales
revenue
14.0%
182
33
15
FY22
ANZ
15.9%
216
38
6
FY23
16.4%
China
CHINA UNPROMPTED BRAND AWARENESS2
23%
17%
13%
FY21
FY22
FY23
CHINA LABEL IMF DOL VALUE SHARE3
CHINA LABEL IMF MBS VALUE SHARE4
2.5%
2.0%
2.2%
3.3%
3.0%
3.4%
FY21
FY22
FY23
FY21
FY22
FY23
1 Marketing investment by region in NZD$ million.
2 a2MC internal data based on the Company’s brand health tracking. Average brand health metrics for each financial year based on 3 surveys in FY21 and FY22, and
2 surveys in FY23. Sample skews to a2MC target consumers ie higher income earners based in Provinces / cities that are the focus of sales and marketing activities.
3 Smart Path China IMF online market tracking: domestic online platform sales (by value).
4 Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value).
43
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Product quality and food safety
The Company is committed to the highest standards
of product quality and food safety, especially given
a large proportion of its products are consumed by
infants, young children and pregnant women. The
Company has significant proprietary knowledge and
quality processes to deliver A2 protein products that
achieve these standards, as well as compliance with
other market regulations and requirements.
This commitment is supported by:
© A comprehensive and unique focus on A2 beta-
casein protein segregation and testing from farm to
finished product.
© A priority focus on food safety and quality
management audited by accredited third-party
verification agencies for both self-owned and third-
party manufacturing sites.
© Long-term partnerships with high quality third-party
manufacturers who share the Company’s focus and
ambition on social responsibility.
© Relevant industry certifications including ISO 9001
(IMF), SQF and BRC (GFSI recognised certification) at
all processing facilities.
© Ongoing monitoring and compliance with relevant
regulatory requirements in the markets in which the
Company operates.
© Investment in people and training to ensure
capability to meet product quality and food safety
standards.
© True a2™ system for our powdered products for
those most vulnerable.
Responsible marketing
The Company’s approach to marketing infant nutrition
aligns to the core principle of supporting breastfeeding
as the primary form of infant nutrition. The Company
has developed a premium, high-quality range of infant
nutrition products to provide parents an alternative
when breastfeeding is not an option.
The Company complies with local best practice in each
of its active markets with respect to the marketing of
IMF products.
Marketing in Australia of Infant Formula
(MAIF) and Infant Nutrition Council
The Company is a signatory to the MAIF Agreement
and a member of the Infant Nutrition Council, which
represents the major manufacturers and marketers
of infant nutrition 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 Nutrition
in New Zealand.
44
True a2™
The Company takes great care in leveraging its
significant proprietary know-how and quality
processes to deliver products that are made with
A1 protein free milk, are of the highest quality and
are safe and compliant with market regulations and
requirements.
The four pillars of the True a2™ ecosystem cover the complete product
lifecycle. While the ‘Made with a2 Milk™’ and ‘Testing’ pillars are
fundamental to the composition and safety of our products, the
‘Independent product audits’ and ‘QR – verification system’ pillars
demonstrate a2MC’s commitment to reducing risks around food fraud.
The True a2™ ecosystem captures the Company’s proprietary know how
and processes to deliver superior quality and traceable products. This
ensures that a parent in China or a parent in Australia has the same,
highest quality powdered products from The a2 Milk Company.
Underlying the four pillars is the Company’s scientific heritage, clinical
research and understanding, the quality of its raw materials, its
knowledge of beta-casein protein testing from farm to shelf, and its
production and supply chain.
Made with a2 Milk™
At The a2 Milk Company, we go to great lengths to ensure that our
a2 Milk™ is from cows that naturally produce milk with only the A2-type
protein and no A1. Our farmers hand select cows that naturally produce
only the A2-type protein by using a simple and non-invasive genetic test
that analyses a hair or tissue sample from each cow. These cows are then
milked separately and the milk is segregated throughout the supply chain.
Testing
Testing is an integral part of the product development process. At
multiple stages along the a2 Platinum® and Zhi Chu® product journeys,
ingredients, packaging components, and the final product are tested.
This ensures all our a2 Platinum® and Zhi Chu® products meet the highest
quality and safety standards.
QR code – verification system
Each and every can of a2 Platinum® and Zhi Chu® products has a
unique QR code, allowing consumers to obtain further information
about the product.
Independent product audits
The a2 Milk Company employs an independent third-party to verify its
a2 Platinum® and Zhi Chu® products. Oritain is a food-traceability expert
and tests samples of a2 Platinum® and Zhi Chu® products it obtains
straight from retail shelves to confirm that these products are True a2™.
This testing is scientific, ongoing and completely independent.
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter SHAREHOLDERS
Create long-term, enduring value for shareholders
and a trusted, transparent relationship.
Delivering on this objective requires strong financial
performance underpinned by long-term strategic decision
making and supported by a robust capital management
framework. A focus on execution and close management of
business risks and opportunities are also critical to delivering
successful outcomes. The Company’s strong balance
sheet provides it with the flexibility to respond to risks and
opportunities in pursuit of long-term value creation in line
with the Company’s strategic objectives.
The Company continues to strengthen its strategic
partnerships to support its next phase of growth. Its
strategic partners provide a range of benefits including
manufacturing expertise, market access support, distribution
and logistics services, and consumer and regulatory insights.
Maintaining transparency with the Company’s shareholders
ensures they are informed, and updated with the
Company’s strategic priorities and decision-making
processes. The Company continues to provide more
information through its approach to integrated reporting
and a variety of reporting frameworks including the Task
Force for Climate-related Financial Disclosures, Carbon
Disclosure Project, Global Reporting Initiative (GRI) and
alignment to New Zealand’s External Reporting Board (XRB)
and the International Sustainability Standards Board (ISSB).
In FY23 the Company made meaningful progress against
its medium-term financial ambitions, with strong growth
in revenue and earnings, and is well positioned for further
growth in a challenging market.
KEY METRICS DATA (FY23)
+10.1%
Revenue growth
13.8%
EBITDA margin
+28.7%
Earnings per share
(EPS) growth
+8.5%
Closing share price growth
46.7%
Return on capital
employed (ROCE)1
$149m
Share buyback
completed
The Company's medium-term ambition is to grow sales from
$1.2 billion in FY21 to approximately $2 billion by FY26 or
later and to improve EBITDA margins in the 'teens'.
1. ROCE is defined as EBIT/Capital Employed. Capital Employed is calculated
as total assets less current liabilities and cash and term deposits.
SUSTAINABLE DEVELOPMENT GOALS
SDG 8: Decent work and economic growth
Target 8.2
45
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Capital allocation to drive growth
The Company’s capital allocation framework prioritises investment
in growth initiatives ahead of returning capital to shareholders.
There are several critical elements to be considered as part of the
capital framework.
Firstly, the Company will invest to grow its core business in
existing markets, which includes investment to build its business
in China, supply chain transformation, and other infrastructure to
support growth.
The second element is investment to expand the boundaries of its
business. This includes:
© Expanding its presence in an existing market with a new
product, or entering a new market with an existing product.
© Assessing complementary mergers, acquisitions and joint
ventures to drive further growth in core markets.
Thirdly, the Company needs to ensure it maintains a level of
balance sheet strength and flexibility to support business growth
and risk management activities, and to manage in uncertain
operating environments.
Finally, the Company will make decisions to return excess capital
to shareholders where it is in shareholders’ long-term interests
to do so.
The Company’s capital allocation framework is continually
reviewed by management and the Board and is summarised
in the image below.
Capital management
On 20 March 2023, the Company announced the completion
of its on-market share buyback. Over the course of the buyback
programme, the Company acquired 21,680,314 shares,
representing 2.9% of issued capital. The average price for the
purchases was NZ$6.87 per share (excluding brokerage costs).
The acquired shares were cancelled and the total outstanding
ordinary shares in the Company following the completion of the
buyback is 721,976,214.
As a result of the buyback programme, the Company has further
reduced its Share Capital in its Consolidated statement of
financial position and reported Share Capital of NZ$100,000 for
FY23 (FY22: NZ$149,157,000).
CAPITAL ALLOCATION FRAMEWORK
Operating cash flow generation
Capital funding
Grow the core business in existing
markets
— Invest in building core business
— Transform supply chain
— Enable investment in systems,
infrastructure, quality, safety and
expertise
— Organic growth – existing and new
products/new retail channels
— Assess M&A opportunities to support
core business growth and supply
chain evolution
Expand the boundaries
Balance sheet strength and flexibility
— Adjacent new product categories in
— Capacity to support business growth
existing markets
and risk management initiatives
— Geographic expansion of existing
products into new markets
— Assess M&A opportunities to
expand boundaries
— Maintain a conservative cash reserve to
manage in an uncertain environment
Excess cash flow
Shareholder returns
46
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Strategic partnerships and supply chain
investments
The Company has built its foundations with a number of key
strategic partnerships.
Each partner brings different strengths that enable the
Company to execute against its strategic objectives. In particular,
its strategic partnerships with China National Agriculture
Development Group, China Animal Husbandry Group and China
State Farm Agribusiness provide invaluable insights and assistance
in understanding the consumer and regulatory environment in
China. a2MC also has supply and other relationships with Synlait,
MVM and Fonterra.
China National Agriculture Development
Group Co., Ltd.
China National Agriculture Development Group Co., Ltd.
(CNADC) is a leading State-Owned Enterprise (SOE) and offers
comprehensive agricultural services in mainland China. CNADC is
responsible for meeting China’s agricultural needs with 17 wholly-
owned or share-controlled subsidiaries, and three publicly listed
companies. CNADC’s knowledge of the Chinese market and its
ownership of China State Farm Agribusiness and China Animal
Husbandry Group positions it as a strong partner for a2MC for
the long-term.
China State Farm Agribusiness
China State Farm Agribusiness Holding Shanghai Co., Ltd (CSFA)
is an SOE and became the Company’s exclusive logistics and
distribution partner for IMF products in China in 2013. CSFA is
the exclusive import agent for the Company’s China label IMF
products with 120 active IMF distributors and approximately
110 UHT and milk powder distributors throughout the country.
The Company renewed its agreement with CSFA for a term of
five years from 1 October 2022 and entered into a longer term
strategic co-operation agreement. CSFA’s China expertise is of
significant value to a2MC in managing its operations effectively.
China Animal Husbandry Group
China Animal Husbandry Group (CAHG) is an SOE and became a
strategic partner when the Company purchased 75% of MVM in
2021. CAHG holds 25% of MVM and is also owned by CNADC.
The partnership with CAHG provides the opportunity to build and
enhance the Company’s relationships with key partners in China.
Synlait
Synlait Milk Limited (Synlait) has produced a2MC’s IMF products
since 2012 and sources its milk from the Canterbury Plains and
Waikato regions in New Zealand. a2MC and Synlait renewed their
agreement in 2019. The agreement outlined a two-year extension
to the original agreement providing for a rolling three-year term
from 1 August 2022 (i.e. an evergreen agreement subject to
termination by either party on three years notice). In addition
to its supply agreement, a2MC holds a 19.8% equity interest in
Synlait, making it the second-largest shareholder. Synlait’s largest
shareholder is Bright Dairy, a multinational food and beverages
manufacturing company headquartered in China. Bright has a
39.0% interest in Synlait and is its controlling shareholder.
Mataura Valley Milk
Mataura Valley Milk (MVM) is a purpose-built nutritionals facility
and sources milk from Southland in New Zealand. a2MC acquired
a 75% interest in MVM in July 2021. The acquisition provides
a2MC with a unique opportunity to insource certain volumes
from Synlait, to prioritise innovation of an owned facility, achieve
additional China label registrations over time and capture
vertical manufacturing margins. FY23 was the Company’s first
full year with its 75% interest in MVM. In FY23, the Company
has fully internalised whole milk and skim milk powder products
through MVM.
Fonterra
In 2018, the Company announced arrangements with Fonterra
Co-operative Group Limited that include an exclusive licensing
agreement for the production, distribution, sale, and marketing of
a2 Milk™ branded fresh milk in the New Zealand market.
47
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Environmental Social & Governance Reporting
With the adoption of the ISSB standards through both New Zealand’s External Reporting Board (XRB) and the
Australian Treasury's climate-related disclosure requirements, the Company acknowledges the importance of
Environmental, Social and Governance (ESG) reporting.
The Company reports against the TCFD framework and reports
with reference to ‘Integrated Reporting’ principles. In addition
to this, the Company has considered the GRI universal standards
and undertook an ISSB readiness assessment in FY23. Based on
this work, the Company believes it is prepared to align to the
standards when released at the end of the financial year. An
index for each of the frameworks the Company has aligned to
is available on its website in the ESG reporting library at www.
thea2milkcompany.com/ESG-reporting.
Taskforce on Nature-related Financial Disclosures
In March 2023, the Taskforce on Nature-related Financial
Disclosures (TNFD) released its fourth and final beta framework
with plans to publish final recommendations in September 2023.
Given the importance of nature to its business model and
activities, the Company conducted two nature-based risk and
opportunity assessments on areas of significant geographical
footprint in FY23. With the TNFD framework to be released
in FY24, the Company is preparing to report in line with the
requirements and recommendations of the framework and
expects to increase its transparency and accountability in relation
to nature related risks and opportunities moving forward.
Task Force on Climate-related Financial Disclosures
The Company undertook its second climate scenario analysis in
FY22. Despite the increased reporting done by the Company
throughout the year, it decided to not conduct a third analysis
as there were no material changes to the business during the
FY23 period. The Company has remained focused on its strategic
responses to the risks identified in FY22, with the release of its net
zero roadmap and its focus on consumer demands. The Company
will conduct a refreshed analysis in FY24 to comply with the
upcoming ISSB and XRB standards and ensure it is aligned with
the latest sustainability requirements.
New Zealand’s External Reporting Board
In December 2022, New Zealand’s External Reporting Board (XRB)
announced the publication of the climate-related disclosures. The
XRB Climate Standards considers both the TCFD framework and
the ISSB standards. Given the work done to adhere to the ISSB
standards, the Company is prepared to report against XRB when
required in FY24.
Australian Treasury
In June 2023, the Australian Government released a consultation
paper for the proposed climate-related disclosure requirements.
The standards are an interpretation of the ISSB standards that
were finalised in June 2023. Given the work done to adhere to
the ISSB standards, the Company is prepared to report against
Treasury's climate-related disclosures when required in FY25.
International Sustainability Standards Board
In June 2023, the International Sustainability Standards Board
(ISSB) released the first universal ESG related standards, IFRS
1 (general sustainability standards) and IFRS 2 (climate related
standards), which aim to promote transparency and consistency
in sustainability reporting. To further strengthen these standards,
the ISSB incorporated several other sustainability frameworks,
including the Taskforce on Climate-related Financial Disclosures
(TCFD), Value Reporting Framework (VRF) (including Integrated
Reporting), Sustainability Accounting Standards Boards (SASB)
and reference to the Global Reporting Initiative (GRI).
Sustainability Accounting Standards Board (SASB)
SASB aims to identify the sustainability-related risks and
opportunities that are material to understanding how an
organisation creates value. As a part of the ISSB readiness
assessment, the Company considered the SASB, Food and
Beverage – Meat, Poultry and Dairy standards when disclosing
ESG metrics.
Global Reporting Initiative (GRI)
In 2023, the Company aligned to the GRI universal standards.
The GRI is an independent international standard that aims to
standardise comparable, and consistent ESG information.
48
THE a2 MILK COMPANYPROGRESS TOWARDS OUR GOALS CONTINUEDBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Carbon Disclosure Project
The Company completed its fourth submission of the Carbon
Disclosure Project (CDP) Climate Change questionnaire. The
questionnaire measures and outlines the risks and opportunities the
business faces with regards to climate change. The questionnaire
is scored by CDP and then released for public review following
the rating. This provides transparency to shareholders on
climate change impacts and how the Company is navigating
these challenges. The rating also provides shareholders with a
comparison to other corporates as it relates to its approach to
climate change. The Company submitted the next iteration of
the survey in July 2023, and is considering whether this will be its
final submission given the expanded climate reporting that will be
required in FY24 and FY25.
Australian Packaging Covenant Organisation
In FY23, the Company submitted its second Australian Packaging
Covenant Organisation (APCO) Annual Report (Page 39 of this
Annual Report) and received a 'leading' rating.
Anti-Modern Slavery
In FY23, the Company released its third Modern Slavery Statement
under the Modern Slavery Act (page 29 of this Annual Report).
Reconciliation Action Plan
The Company formally commenced its reconciliation journey by
committing to the Reconciliation Action Plan (RAP) framework
established by Reconciliation Australia. In April 2023, the
Company received formal endorsement for its first ‘Reflect’ RAP.
Indicative external reporting pathway
FY23
FY24
FY25
FY26+
XRB New Zealand Climate
Standards 1 & 3
© Align to TCFD
© Align to SASB
© Align to GRI
© External gap assessment
against XRB and ISSB
© Obtain limited assurance
over selected ESG
disclosures
XRB reporting
Treasury/ISSB reporting
IFRS S1 & S2
© Align to XRB
© Continue limited
assurance procedures
over selected ESG
disclosures
© Continue to build
upon nature risk
and opportunity
assessments in
preparation for TNFD
alignment
© Align to Australian
Treasury's climate-related
disclosure requirements and
ISSB S1/S2
© Obtain reasonable level of
assurance over Scope 1 and
2 emissions
© Continue limited assurance
procedures over selected
ESG and climate disclosures
© Continue aligning to TNFD
© Align to XRB, ISSB and
Australian Treasury's
climate-related disclosure
requirements
© Align to TNFD
© Obtain reasonable level of
assurance over Scope 1 and
2 emissions
© Continue limited
assurance procedures
over selected ESG metrics,
climate disclosures and
transition plans
49
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Risks and opportunities
The Company recognises that the management
of risks and opportunities is an inherent part of
actively growing and developing the business.
Effective risk management anticipates risk, develops strategies
to manage risk and enables the Company to capitalise on
opportunities, which is critical to sustainable, long-term
value creation.
The a2 Milk Company Risk Management Policy outlines the
programme the Company has implemented to deliver appropriate
risk management within its processes, systems, culture and
decision making. A copy of the Risk Management Policy is
available at www.thea2milkcompany.com/corporate-governance.
Governance of risk
The Board is responsible for the overall system of internal control
and has delegated responsibility for ensuring that the Company
maintains effective risk management and internal control systems
and processes to the Audit and Risk Management Committee. The
Audit and Risk Management Committee reviews the risk profile
including material business risks and provides regular reports to
the Board on the operation of the internal control system.
The Company’s management is responsible for designing and
implementing risk management and internal control systems
which identify material risks for the Company and aim to provide
the Company with warnings of risks before they escalate.
Management implements the action plans developed to address
material business risks across the Company.
Management regularly monitors and evaluates the effectiveness
of the action plans. In addition, management promotes and
monitors the culture of risk management within the Company and
compliance with the internal risk control systems and processes.
The nine sources of risk
Management reports regularly to the Board regarding the status
of the risk management programme and reviews its effectiveness
with the Board.
The Committee and management may also refer particular
risk management issues to the Board for final consideration
and direction.
Approach to risk management
The Company’s approach to risk management is anchored to ISO
31000 principles to ensure that robust foundations support our
processes and procedures and, in doing so, this allows the Board
to fulfil its governance responsibilities by making a balanced
assessment of the risk management process. Risks are identified,
assessed and monitored through regular workshops with senior
management and the Audit and Risk Management Committee.
Mitigating actions and controls are designed to limit the likelihood
of key risks occurring, as well as the associated impact if these
risks occur.
The Company’s risk management approach evolves continually
as we identify, assess, mitigate, and monitor both financial and
non-financial risks that may affect our ability to achieve our
strategic goals.
The Company has identified nine sources of risk and opportunity
relevant to its business activities. The pages that follow provide
an overview of each source of risk, including key economic,
environmental and social risks with the potential to materially
impact the Company’s ability to achieve its objectives. They also
summarise how the Company is responding to those risks, as well
as associated opportunities.
The sale of nutritional
food products
Doing business in
international markets
PAGE 51
PAGE 52
Major international
events
PAGE 53
Competitive
intensity
PAGE 54
Evolving technology
and cyber security
PAGE 57
50
Climate and
nature
PAGE 55
Talent and
culture
PAGE 58
Strategic
partnerships
PAGE 56
Social licence
to operate
PAGE 59
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter The sale of nutritional food products
The a2 Milk Company supplies food products for human consumption, including complex
nutritional products for consumption by infants and children. As a result, the Company is
inherently exposed to potential product quality, food safety and/or food integrity events.
KEY RISKS
KEY RESPONSES
Genuine, perceived, or alleged contamination,
or unsafe products
© Priority focus on food safety and quality management
© Food safety and quality systems audited by accredited third-party
verification agencies
© High-quality third-party manufacturing partners
© Rigorous positive release protocols (comprehensive testing of product
quality and integrity prior to the release of finished product)
© Traceability systems
© Product innovation and technology to enhance product security
© Testing of certain distributed products in selected markets
© Dedicated customer careline covering all active markets
KEY OPPORTUNITIES
An increasingly health-conscious society combined with the size and enduring nature of the nutritional food category provides
significant opportunity to:
© Leverage our pioneer status to promote the benefits of products made with a2 Milk™.
© Assert the Company’s competitive advantage in beta-casein testing and technology (our True a2™ ecosystem – page 44).
© Continually advance an uncompromising Quality Assurance programme.
© Maximise the potential of our existing product portfolio in key markets.
© Explore opportunities to innovate and expand our existing product portfolio, and enter adjacent product categories
to drive growth.
51
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
RISKS AND OPPORTUNITIES CONTINUED
Doing business in international markets
With the Company’s expanding geographical footprint, it is exposed to various risks and
opportunities associated with conducting business in international markets.
KEY RISKS
KEY RESPONSES
Changing macro trends (including demographic,
economic and social trends), which can impact the
size of addressable markets and/or the complexity
of operating in those markets (e.g. declining China
birth rates)
© Continued strong investment in brand to grow share
© Agile approach to the execution of sales and marketing programmes,
adjusting where appropriate to reflect shifts in consumer and channel
dynamics
© Leverage multi-label, multi-channel portfolio to broaden distribution
Geopolitical tension and regulatory environments
influencing channels to market, market access,
product registrations, trade tariffs, taxes,
and quotas
© Strong understanding of local standards, regulations and guidelines,
supported by expert in-market advisory
© Strong strategic and collaborative partnerships with Chinese State-owned
enterprises1
© A multi-product, multi-channel route to market strategy for the sale of
infant nutrition into China
Foreign currency exchange rate volatility
© Treasury management activities, providing oversight and monitoring of
foreign currency exposures with some cash flow hedging
Multilayered, complex, and opaque route to
market channels
© Actions taken to simplify and delayer our English label infant milk
formula distribution network, supported by more transparent partner
relationships and greater control
Renewal of the SAMR product registration2 for
China label infant nutrition
Long-term approval of USA IMF
KEY OPPORTUNITIES
© Close partnership with infant nutrition manufacturer, Synlait, which holds
GACC3 and SAMR registrations allowing canned formula to be exported
to and sold into the China market
© Supported Synlait to successfully complete SAMR registration
© Operational plans in place to navigate orderly transition to newly
registered China label product
© Close collaboration with Synlait, to complete and submit the New Infant
Formula Notification for the sale of USA IMF product beyond the period
of enforcement discretion
© Use of third-party local experts for FDA guidance
Doing business in international markets provides the opportunities for us to fulfil our strategic goal to ‘bring the unique benefits
of pure and natural a2 Milk™ to as many consumers as possible’. These include:
© Significant further growth potential of infant nutrition and other products in China, the largest and most attractive market
for infant nutrition globally.
© Exposure and potential entry to attractive new markets.
© Ability to leverage the unique benefits of a2 Milk™ to engage with consumers in international markets.
© Operational resilience through developing and leveraging enduring strategic relationships.
© Experience sharing of consumer and product insights across markets.
Refer to shareholders section for detail on partnerships
1
2 China’s State Administration of Market Regulation (SAMR) requires registration to be held in the name of the manufacturer as opposed to the brand owner. The
current registration for a2MC China label products was granted to Synlait in June 2023 and expires in September 2027
3 General Administration of Customs of the People's Republic of China
52
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Major international events
The COVID-19 pandemic and international events have caused unprecedented social, economic
and supply chain disruptions globally. Additionally, potential outbreaks of animal diseases are a
risk for the business.
KEY RISKS
KEY RESPONSES
Route to market disruption and transport cost
volatility
© Continued close cooperation with Synlait to maintain continuity of infant
milk nutrition supply, and third-party suppliers in Australia and the USA
to maintain continuity of liquid milk supply
© Increased warehousing locations in China to mitigate against disruptions
caused by lockdowns associated with COVID-19
© Enhanced inventory surveillance and reporting to maintain stock control
and availability through the supply chain
© Hold safety stock levels to withstand short market disruptions
Health and wellbeing of our people
© Adoption of robust infection control protocols in line with all relevant
Inflationary pressures creating volatility in
operating costs and availability of ingredients and
raw materials
government requirements, particularly across the Company’s
manufacturing facilities
© Use of long-term milk supply agreements in certain markets
© Forward procurement of key ingredients to stabilise price and ensure
availability
© Dual sourcing of supply for certain ingredients
© Strong premium brand providing platform for cost recovery to varying
extent through wholesale price adjustments
Potential animal disease incursions impacting the
ability to supply export markets
© Assist farmers with farm biosecurity plans and preparedness
© Development of Business Continuity and Crisis Management frameworks
and procedures including simulations to mimic real life events
KEY OPPORTUNITIES
Our response to global events provides opportunities to enhance our profile in existing markets, and provide support to
disrupted markets.
© Consumer share gain opportunities through ensuring product availability in a supply-constrained environment.
© Our Company structure and culture provides agility to rapidly respond to global events.
© New market/product opportunities.
53
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
RISKS AND OPPORTUNITIES CONTINUED
Competitive intensity
The a2 Milk Company has experienced significant growth over recent years, driven predominantly
by the success of its infant nutrition businesses in Australia and China and liquid milk businesses
in Australia and the USA. This success has inspired others to compete with a2MC in the A2 beta-
casein protein segment.
KEY RISKS
KEY RESPONSES
Market share erosion in core markets due to
domestic brands’ potential to resonate and
connect more effectively with local consumers than
international brands
© Significant and ongoing investment in brand building activities globally
© Use of consumer and health care professional education to ensure clear
understanding of the unique A2 protein proposition and benefits
© Significant and ongoing investment in science, nutrition and innovation
globally to ensure the Company delivers unique consumer value
propositions in all its markets underpinned by its proprietary know-how
and quality processes
© Regular monitoring of market share data and proprietary research into
consumer/shopper insights, preferences, and expectations
© Continued investment in intellectual property to expand the Company’s
trade mark and patent portfolio
Infringements of our intellectual property rights
resulting from third-party conduct or claims against
such IP rights
© Monitoring infringement of the Company’s IP and taking action to
protect it
Counterfeit products
© Processes and technology to identify and manage potential counterfeit
products including the use of external agencies and in-market
authentication testing
© Development of the True a2™ ecosystem, which includes independent
product audits and QR code verification systems to ensure products are
of the highest quality and safety (see True a2™ page 44)
KEY OPPORTUNITIES
While competitive intensity can present market share erosion risks, it also expands consumer awareness and engagement with
the benefits of a2 Milk™, encourages opportunities in relation to product innovation, and allows a2MC to further leverage its
‘pioneer’ and premium brand status. Opportunities exist to:
© Emphasise our proprietary know-how and quality processes to deliver A2 protein products that are of unrivalled quality.
© Invest in science, nutrition and innovation to continue to pioneer the future of dairy and explore new opportunities.
© Drive awareness and education of our unique A2 protein proposition and benefits to increase our consumer base.
54
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Climate and nature
Being heavily dependent on agricultural inputs, a2MC is exposed to short, medium and long-term
climate and environmental risks including physical risks resulting from acute and chronic changes
in climate, and transition risks resulting from regulatory, or market pressures associated with
on-farm emissions (see Task Force on Climate-related Financial Disclosures statement and index,
within sustainability reporting library).
KEY RISKS
KEY RESPONSES
Climate change effect on biodiversity, soil,
ecosystems, water access and uncertainty in carbon
pricing, quality and availability of raw materials and
ingredients
© Established baseline and set targets for GHG emissions
© Establishing baselines and setting targets for water consumption,
waste-to-landfill and product packaging (see pages 33 to 39)
© Sourcing milk from diversified milk pools within New Zealand, Australia
and the USA and incorporating climate impacts into future sourcing
strategies
© Investing in new technologies and emissions reduction initiatives, such
as upgrading the coal-fired boiler at MVM to high-pressure electrode
using renewable energy
© Global framework for farm environmental plans, addressing the most
material aspects of environmental management in the dairy industry
© Farmer grant programmes to support farmer-led sustainable dairy
farming projects
Risk of natural disasters (e.g. flooding, drought,
earthquake), particularly in Dunsandel given the
China label product registration
© Diversification of processing locations with capability at both Synlait
and MVM
© Plan to obtain additional China label registrations
© Insurance coverage
KEY OPPORTUNITIES
Acknowledging climate and nature risks provides significant opportunity for the Company to play a leading role in driving
industry change. Building trust with increasingly climate aware consumers and ensuring climate scenarios and modelling are
considered in medium-term and long-term strategic planning to develop operational resilience. Opportunities exist to:
© Develop operational resilience by incorporating climate and nature scenario modelling into long-term strategic planning.
© Strengthen brand and social positioning via a leadership position in GHG emissions reduction, recyclable packaging and
farming practices.
© Realise increased productivity and efficiency via new technologies and practices that lower emissions and environmental
impact.
© Enhance our climate risk modelling and Task Force on Climate-related Financial Disclosures (TCFD) reporting and early
adoption of the voluntary Taskforce on Nature-related Financial Disclosures (TNFD) framework.
55
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
RISKS AND OPPORTUNITIES CONTINUED
Strategic partnerships
The Company’s success has been underpinned by relationships with key strategic partners,
including critical supply and distribution partners. As a result, the business is inherently exposed
to the operations of key partners changing in a material way, or as the result of one or more
partners reprioritising their support for a2MC.
KEY RISKS
KEY RESPONSES
Disruption to key partner operations impacting
supply and/or access to critical markets
© A broad range of strategic partner relationships have been developed
over time
© Long-term partnership with dairy nutritionals manufacturer, Synlait,
complemented by the Company’s equity interest in that business (and
in which Bright Dairy, a multinational food and beverage company
headquartered in China, has a 39.0% interest)
© Supplier diversification through driving insourcing and innovation at
MVM
© Strong partnership with China State Farm Agribusiness, a2MC’s
exclusive import agent and master distributor for its China label
products
© Strengthened relationship with key partners in China via joint
investment in MVM with China Animal Husbandry Group (CAHG)1
Key partners reprioritising their support for a2MC or
failing to act ethically or in line with a2MC’s values
© Multiple milk processors contracted in Australia and the USA, mitigating
reliance on a single processor in these regions
Ability to ensure timely supply of finished products
to customers
© A controlling 75% interest in MVM supports growth of the Company’s
nutritionals business and further strengthens our relationship with
China National Agriculture Development Group Co., Ltd. (parent
company of CAHG)1
© Actions taken to simplify and de-layer our English label infant milk
formula distribution network, supported by more transparent partner
relationships
© Ongoing access to milk pools that exceed the Company’s current usage
requirements
© Access to manufacturing capacity that exceeds current usage
requirements
KEY OPPORTUNITIES
Our key partnerships provide significant opportunities including:
© Access to high quality manufacturing capacity to support growth ambitions.
© Access to international markets (including opportunities to expand product registrations).
© Opportunities to diversify supply chain partners over time to build operational resilience.
1 Refer to shareholders section for detail on partnerships.
56
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Evolving technology and cyber security
Technology is used by a2MC to build and promote brand loyalty, process transactions, manage
stock, manage product purchases and deliveries and manage operational production amongst
other functions. Uninterrupted availability of the technology solutions is a crucial element of the
value creation chain.
KEY RISKS
KEY RESPONSES
Cyber-attacks (including ransomware) and unauthorised
disclosure of, or loss of, confidential
data/information
© Continue to improve cyber security systems and protections,
including engagement of specialised third parties to assist with
24/7 monitoring, classification and restriction of access to sensitive
information, conducting regionally-specific cyber security audits,
implementing more sophisticated cyber tracking and monitoring tools
Reliability/stability of critical applications
© Continued transitioning core functions to Tier 1 cloud-based
enterprise resource planning (ERP) software
© Implemented best of breed cloud-based solutions for functions which
are outside the scope of ERP and continue to reduce the number of
legacy applications in use across the business
KEY OPPORTUNITIES
Advances in technology also present significant opportunities, including:
© Digital platforms that support consumer engagement and marketing initiatives.
© Real-time data combined with the use of Artificial Intelligence (AI) to drive insights and informed decision making.
© The use of emerging product technology including supply chain traceability systems.
© Increased automation of manufacturing, sales and distribution processes over time.
57
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
RISKS AND OPPORTUNITIES CONTINUED
Talent and culture
The Company relies on the talent and wellbeing of its people and the effectiveness of its culture
for success. The loss of business-critical skills or the inability to identify, attract and retain
qualified people could have a direct impact on managing business operations successfully.
KEY RISKS
KEY RESPONSES
Failure to adequately protect the physical and
psychological wellbeing of our workforce resulting
in harm to health, safety and wellbeing
© Investment in dedicated programmes and resources that support our
people; including ‘the way we work’ policy, health expos, partnership with
Headspace, integrative employee assistance programme and ‘stop for safety’
initiatives
© Implementation of dedicated site safety managers at both manufacturing
sites
© Actively promote an inclusive and diverse workplace through initiatives that
reiterate our culture of ‘bringing your authentic self’ to work
© Continue to invest in the development of constructive and humanistic
leaders through our 'Thrive' leadership development programme
Critical corporate knowledge and specialised skills
lost from the business, due to regrettable attrition
© Alignment of remuneration to market benchmarks, Company objectives and
risk tolerances
© Regular engagement surveys to drive targeted people initiatives
© Regular talent discussions at Executive Leadership Team (ELT) level
© Continue to evolve the operating model to reinforce talent and ‘bench
strength’ at all levels and functions
Impact to team productivity due to lack of
capability and capacity
© Investment in formal and on-the-job learning and development opportunities
to support individual development plans
© Evolve our operating model to support and promote global mobility, cross
functional skills transfer and promoting from within
KEY OPPORTUNITIES
Providing a safe, diverse, inclusive and engaging working environment is foundational to attracting, developing and retaining
talent, which in turn is critical to sustainable growth. Opportunities exist to:
© Amplify the unique attributes of working at a2MC and aim to be the employer of choice in the sector.
© Nurture the inherent energy, passion and enthusiasm that working for a trusted and unique brand attracts.
© Promote the employee experience, foster a learning environment, and celebrate diversity and inclusion.
© Cultivate our purpose-driven culture.
58
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Social licence to operate
Acting and operating in an ethical manner, consistent with the expectations of our shareholders,
customers, consumers, suppliers, regulators, governments, communities and other
stakeholders, protects our reputation and economic sustainability. A real or perceived abuse of
our social licence to operate could result in significant brand damage, financial loss, and the loss
of strategic partnerships.
KEY RISKS
KEY RESPONSES
Non-compliant or sub-standard animal welfare practices
Responsible marketing (e.g. promotion of breast milk
substitutes)
© The Company’s animal welfare programme aligns to globally recognised
frameworks for Animal Health and is evolving from the Five Freedoms
Model to the Five Domains Framework of animal welfare (refer to page 37)
© Signatory to the Marketing in Australia of Infant Formula: Manufacturers
and Importers Agreement 1992 (MAIF Agreement) (refer to page 44)
© Cross-functional approval process implemented (including regulatory and
legal review) prior to publication of marketing material
Modern slavery in the supply chain (refer to page 29)
© Modern slavery risk management programme, with annual Modern Slavery
Potential bribery and corruption allegations
Statement submissions
© Corporate values and a suite of corporate codes and policies developed and
embedded (including a Code of Conduct and a Responsible Sourcing Policy)
© Corporate values and a suite of corporate codes and policies developed and
embedded (including an Anti-Bribery and Corruption Policy and Gifts and
Hospitality Policy)
Water usage, waste water and water pollution
© Established initial targets for water in New Zealand with plans to expand
water targets through nature risk and opportunity assessments
© Water use monitoring systems in place at MVM and Smeaton Grange milk
processing site
© Undertaking water usage reduction projects and utilisation of a waste-
water treatment system on-site at Smeaton Grange, with liquid waste
products returned to farms and used as fertiliser
© Farmer grant programmes to support farmer-led sustainable dairy farming
projects
KEY OPPORTUNITIES
Our purpose to pioneer the future of dairy for good refers to a significant leadership opportunity to do business the right way
and exceed stakeholder expectations in doing so. This includes:
© Aspire to lead the market in making a positive contribution to society. For example to set and monitor industry-leading
standards for animal welfare on a2MC supplier farms and to commit to engage and invest in the communities in which the
Company operates through proactive programmes as well as reactive support in times of need.
© Take a leadership position in protecting our planet.
59
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Corporate governance
Governance
Directors
Executive Leadership Team
Remuneration
60
64
66
68
Governance
The Company is committed to maintaining the highest standards
of corporate governance. The Company’s 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.
Corporate Governance Statement
The Company’s Corporate Governance Statement, which is current
as at 30 June 2023 and approved by the Board, can be found at
www.thea2milkcompany.com/corporate-governance.
Good corporate governance adds to the performance of
the Company, creates shareholder value and engenders the
confidence of the investment market.
The Company’s corporate governance framework has been
developed with regard to:
© the NZX Corporate Governance Code dated 17 June 2022
(NZX Corporate Governance Code)
© the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations,
4th Edition (ASX Principles)
For FY23 the Company’s corporate governance framework
complied with the recommendations in the NZX Corporate
Governance Code and the ASX Principles.
The Company notes the amendments to the NZX Corporate
Governance Code, which took effect from 1 April 2023 which
the Company will report against in its FY24 Annual Report and
Corporate Governance Statement.
60
The 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 advisors 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. These
include matters relating to the Company’s strategic direction,
financial performance, executive management, audit and risk
management, business planning, corporate governance and
disclosure, performance evaluation, workplace health and safety,
ethical conduct, and determining the Company’s sustainability, risk
management and strategy implementation, including to respond
to the Company’s environmental and social sustainability risks and
opportunities.
The Board delegates certain functions to its three Committees
(Audit and Risk Management Committee, People and
Remuneration Committee, and Nomination Committee). The
diagram opposite illustrates the Company’s corporate governance
framework.
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Independent
assurance(i)
Company
Secretary(ii)
Governance framework
Board of
Directors
Accountability
and reporting
Delegation and
oversight
Board
committees
(ARMC, PRC,
NOM)
Delegation and
oversight (iii)
Accountability
and reporting
CEO(iv)
Delegation and
oversight
Accountability
and reporting
Executive
Leadership
Team(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
(v)
the Executive Leadership Team.
Implements strategy and business plans;
manages performance and behaviours of teams
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, sustainability risk
management and strategy implementation, internal and external
audit functions, and corporate reporting, including sustainability
reporting.
People and Remuneration Committee (PRC)
This committee assists the Board in overseeing the design and
implementation of appropriate people and remuneration policies
and practices for the Company, to ensure the Company can
deliver on its business objectives, remuneration is fair and current,
and the Company is compliant with relevant laws, regulations and
applicable listing rules.
Nomination Committee (NOM)
This committee assists the Board by considering nominations to
the Board to provide an appropriate mix of skills, experience and
diversity on the Board.
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.
61
ANNUAL REPORT 2023
CEO’s year in review
GOVERNANCE CONTINUED
Financial statements
Board size, skills and structure
During the reporting period, the Board comprised between five and seven independent non-executive directors (with David Wang
being appointed to the Board on 1 September 2022 and Kate Mitchell being appointed on 1 June 2023) and one executive director,
the Managing Director and CEO, David Bortolussi. Julia Hoare retired from the Board with effect from 30 June 2023. The Company’s
constitution provides for a minimum of four directors and a maximum of eight, of which at least two must be ordinarily resident in
New Zealand to comply with the NZX Listing Rules.
The Board comprises directors with a diverse range of skills, experience and backgrounds to support the effective governance and robust
decision-making of the Group. A summary of the key skills and experience of the current directors against those identified in the skills
matrix is set out below:
CAPABILITY
Consumer products and innovation – experience as a senior executive in, or as a professional advisor to,
consumer products businesses, including sales and marketing, product innovation and supply chain
Digital, data and technology – experience and expertise in e-commerce as well as identifying, assessing,
implementing and leveraging digital and other technology, understanding the application and use of data
and analytics and responding to digital disruption
Financial acumen – understanding of financial statements and reporting, key drivers of financial
performance, corporate finance and internal controls
Food safety and quality – technical or managerial experience relating to food, food product development
and implementation and management of safe practices for the sourcing, production, transport and
distribution of perishable foods
Governance – experience in and commitment to the highest standards of corporate governance, including
as a non-executive director of a listed company, large or complex organisation or government body
International markets – experience as a senior executive in, or as a professional advisor to, international
businesses and exposure to global markets and a range of different political, regulatory and business
environments
Leadership – experience in a senior management position in a listed company, large or complex organisation
or government body, including experience in leading strategy development and execution
People and culture – experience in overseeing workplace culture, people management, development and
succession planning, setting remuneration frameworks and promoting diversity and inclusion
Risk management – experience in identification, monitoring and management of material financial and non-
financial risks and understanding, implementation and oversight of risk management frameworks and controls
Strategy and M&A – development of corporate and business unit strategy and/or mergers, acquisitions
and alliance structuring and execution
Sustainability – understanding and experience in sustainable practices to manage the impact of business
operations on the environment and community and the impact of climate change on business operations
NO. OF DIRECTORS
(TOTAL OF 7)
LEVEL OF CAPABILITY
HIGH
MEDIUM
4
2
2
2
2
3
4
2
2
4
1
1
1
2
1
2
4
3
5
3
3
3
The Board skills matrix identifies the predominant skills of each director. The Board has specifically limited each director to having a
maximum of four areas identified as ‘high capability’ and four areas identified as ‘medium capability’.
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 2023 was as follows:
62
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter COMMITTEE
MEMBERS
INDEPENDENT
NON-EXECUTIVE
Audit and Risk Management Committee
Julia Hoare (Chair)1
People and Remuneration Committee
Warwick Every-Burns
Kate Mitchell2
David Wang3
Sandra Yu
Warwick Every-Burns (Chair)
Pip Greenwood
David Wang3
Sandra Yu
Nomination Committee
Pip Greenwood (Chair)
David Hearn
Julia Hoare1
1 Julia Hoare: retired 30 June 2023
2 Kate Mitchell: appointed member 1 June 2023 and Chair 1 July 2023
3 David Wang: appointed 1 September 2022
Attendance at Board and Committee meetings
Director attendance at Board and Committee meetings during FY23 is set out below.
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
MEETINGS
OF THE BOARD4
AUDIT AND RISK
MANAGEMENT COMMITTEE5
PEOPLE AND
REMUNERATION
COMMITTEE6
NOMINATION
COMMITTEE
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
David Hearn (Chair)
David Bortolussi
(Managing Director & CEO)
Warwick Every-Burns
Pip Greenwood
Julia Hoare1 (Deputy Chair)
Kate Mitchell2
David Wang3
Sandra Yu
7
7
7
7
7
1
6
7
7
7
7
7
7
1
6
7
2
2
1
2
2
2
2
1
2
2
2
2
2
2
2
2
2
2
8
8
8
8
8
8
Held: meetings held during the period for which the person was a director or Committee member
1 Julia Hoare: retired 30 June 2023
2 Kate Mitchell: appointed 1 June 2023
3 David Wang: appointed 1 September 2022
4 In addition to the formal Board meetings, the Board also had 3 workshops to prepare for formal meetings and discuss any issues as they arose
5 In addition to the formal Audit and Risk Management Committee meetings, the Committee also had 3 workshops to prepare for formal meetings and discuss any
issues as they arose
6
In addition to the formal People and Remuneration Committee meetings, the Committee had 1 workshop to prepare for formal meetings and discuss any issues as
they arose
Corporate governance policies
The following policies, each of which has been prepared having regard to the NZX Corporate Governance Code and the ASX Principles
are available on the Company’s website at www.thea2milkcompany.com/corporate-governance:
© Code of Ethics
© Continuous Disclosure Policy
© Diversity and Inclusion Policy
© Risk Management Policy. Refer to the discussion
of this policy commencing on page 50
© Securities Trading Policy
© Shareholder Communication Policy
© Global Whistleblower Policy
© Global Anti-Bribery and Anti-Corruption Policy; and
© Responsible 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.
63
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Directors
David Hearn
Chair & Independent,
Non-executive Director
Master of Arts
David Bortolussi
Managing Director and CEO
Bachelor of Commerce
(University of Melbourne),
FCA, F FIN, MAICD
Warwick Every-Burns
Independent,
Non-executive Director
Advanced Management
Program (Harvard)
Pip Greenwood
Independent,
Non-executive Director
Bachelor of Laws (LL.B.),
University of Canterbury
(New Zealand)
64
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 deep 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, UB Snack Foods Europe/Asia, PepsiCo foods
Europe, Del Monte UK, Smith’s Crisps and for the marketing services group,
Cordiant Communications Group.
In addition to his Company directorship, David is also Chairman of SafeStore
Holdings plc (a UK FTSE listed company) and Lovat Partners Limited. David
resides in the United Kingdom.
David joined the Company in February 2021 from his most recent role as
Group President – International Innerwear, HanesBrands. He joined Pacific
Brands in 2009 initially as Chief Financial & Operating Officer taking over as
CEO of the public company in 2014. In 2016, HanesBrands acquired Pacific
Brands and expanded David’s role to cover Australasia and subsequently
its international innerwear operations outside of the Americas. Prior to
this, David spent five years at Foster’s Group, where he held the role of
Chief Strategy Officer responsible for corporate strategy, M&A, business
development and performance improvement. Prior to Foster’s Group,
David held senior consulting roles at McKinsey & Company and PwC.
David’s career has largely been focused on the consumer and retail sector
in Australia and New Zealand complemented by significant international
experience in various markets and categories in China, SE Asia, the EU and
the USA. David resides in Australia.
Warwick has been a director of the Company since 23 August 2016. He is also
Chair of the People and 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 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 was a Non-Executive Director of the ASX listed Treasury Wine Estates
Limited from 2011 until 2022. Warwick resides in Australia.
Pip has been a director of the Company since 1 July 2019. She is also Chair of the
Nomination Committee and a member of the People and Remuneration Committee.
Pip is currently Chair elect and will assume the role of the Chair of the Board
following the conclusion of the Company’s 2023 Annual Meeting of shareholders.
Currently Pip is also the Chair of Westpac New Zealand and a director of Fisher &
Paykel Healthcare. She was previously a director of Spark New Zealand and Vulcan
Steel. Prior to becoming a full time director, Pip was 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, 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.
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Kate Mitchell
Independent,
Non-executive Director
Bachelor of Arts Honours
(Modern Languages),
Oxford University, UK
David Wang
Independent,
Non-executive Director
Master Business Administration,
Carnegie Mellon University
- Tepper School of Business;
Bachelor of Bio-technology,
Wuhan University
Sandra Yu
Independent,
Non-executive Director
Master - Marketing,
International Business
Management (National
Taiwan University)
Advanced Management Program
(Harvard Business School)
Kate has been a director of the Company since 1 June 2023. She is also
Chair of the Audit and Risk Management Committee.
Kate has significant governance experience as a director of both private and
public companies. She also has extensive experience in developing solutions
for clients, particularly in the areas of financial risk management, structured
financing and investments.
Kate is currently Chair of The New Zealand Merino Company and Link
Engine Management and a director of Heartland Group Holdings,
FarmRight, and Christchurch International Airport, for which she also serves
as Chair of the Risk, Audit & Finance Committee.
Prior to moving to New Zealand in 2014, Kate’s executive career spanned
over 20 years in investment banking in London, which included senior
leadership roles across several divisions within global investment banks
including Deutsche Bank, Goldman Sachs and Merrill Lynch. Kate resides
in New Zealand.
David has been a Director since 1 September 2022. David sits on both the
Audit and Risk Management and the People and Remuneration committees.
David brings extensive expertise across the Asia-Pacific region in
manufacturing and supply chain with over 30 years’ experience in industrial
and consumer goods businesses including 15 years in senior executive
leadership roles in China and international. Currently, David works in
Buhler AG and has been the President of Asia Pacific, Greater China region
for Buhler, a global leader in the provision of industrial solutions, which
specialises in integrated plant equipment system and related services for
food processing and advanced materials manufacturing.
In his career, David has held various senior executive roles including at
Blackstone AVINTIV Inc and Dover Corporation where his responsibilities
covered manufacturing, research and development, technology, sales and
marketing throughout Asia. David also worked with PepsiCo for almost
10 years in operations and supply chain.
David was featured in CEO Magazine (November 2020), and also was
selected as one of CEO Magazine’s 2021 ‘Successful Entrepreneurs, Industry
Disruptors & Game Changers’. David resides in China.
Sandra Yu has been a Director of the Company since 1 March 2022.
Sandra sits on both the Audit and Risk Management and the People and
Remuneration committees.
Sandra is a highly regarded company director and an experienced global
executive in consumer goods industries, and importantly in the infant
milk formula (IMF) market in China, with a proven track record of driving
business and brand transformation, leveraging opportunities for growth,
and building organisational capabilities across China as well as the USA and
other parts of Asia.
As the former head of Mead Johnson Nutrition’s Greater China business,
Sandra was a member of the Mead Johnson Nutrition’s Global leadership
team. Prior to that, Sandra held various other senior executive roles at
Mead Johnson Nutrition, including as the Global Marketing Vice President,
responsible for transition to new digital media and e-commerce channels
globally.
Sandra was also appointed as the non-executive chairwoman to lead RB
China advisory board after the merger between Reckitt Benckiser and Mead
Johnson Nutrition in 2017. Prior to joining Mead Johnson, Sandra held
executive positions at Unilever, where she worked across Asia for thirteen
years. Sandra resides in Greater China.
65
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Executive Leadership Team
David Bortolussi
Managing Director and CEO
Chopin Zhang
Chief Supply Chain Officer
Bachelor of Commerce (University of Melbourne), FCA, F FIN,
Member of the Australian Institute of Company Directors (MAICD)
Master, Business Administration
(Maastricht School of Management)
Refer to page 64.
David Muscat
Chief Financial Officer
Bachelor of Commerce - Accounting and Finance
(Monash University), CA
David joined the Group in October 2022. As CFO, David is
responsible for finance, investor relations, risk and IT across
the Group. David is an experienced finance and people leader
with a history of working in a dual-listed company (NZX/ASX) and
working directly with the Board of Directors and the Audit and Risk
Management Committee.
Prior to joining the Group, David was the CFO of DIM Brands
International (formerly Hanes Europe Innerwear), and prior to this
was the CFO of Hanes Australasia. David was the CFO of ASX and
NZX listed Pacific Brands prior to its takeover by Hanesbrands Inc. in
2016. David commenced his career at Deloitte and has since gained
significant experience in consumer goods and retail sectors in various
international markets, including China.
Chopin joined the Group in November 2022 and has over 35 years’
experience in supply chain management with significant experience
in China and New Zealand, including planning, procurement,
manufacturing, quality, cross-border trade, distribution, regulatory
affairs, and government relations. Chopin has extensive experience
in the China IMF market, having held senior executive and supply
chain leadership roles with Yashili and Danone.
During his career, Chopin has held additional supply chain senior
leadership roles across Greater China, Asia Pacific and the USA with
leading consumer goods companies including Starbucks, Nike and
Johnson & Johnson.
Chopin’s expertise in the China IMF industry and experience across
New Zealand and China are highly relevant to his leadership of the
transformation of the Company’s supply chain to enable further
market access, innovation and growth.
Edith Bailey
Chief Marketing Officer
(Bachelor of Business - Marketing & Management
(University of Technology, Sydney), Graduate of the
Australian Institute of Company Directors (GAICD)
Jaron McVicar
Chief Legal and Sustainability Officer & Company Secretary
Bachelor of Laws (University of Otago)
Jaron joined the Group in November 2016 and is responsible for the
Group’s legal function and our important sustainability programme.
In his role as Company Secretary, Jaron works closely with the Board
on corporate governance and Board related matters.
Prior to joining the Group, Jaron worked in private practice for
15 years as a corporate and commercial lawyer in New Zealand and
the UK.
Jaron is a qualified solicitor in New Zealand and England and Wales.
Edith joined the Company in December 2021 and is responsible
for managing the strategic and creative direction of the a2™
brand, overseeing the science and nutrition functions, developing
integrated marketing programmes and leading product innovation.
Edith was previously Consumer Marketing Director, ANZ, with
Danone Nutricia’s Specialised Nutrition division, having spent
14 years with the organisation in several senior marketing, channel
and category development positions. Edith has significant experience
in the infant nutrition category across China, New Zealand, Australia
and South East Asia.
Before her time at Danone, Edith held senior marketing roles with
PepsiCo, Campbell Arnotts and S.C. Johnson & Son.
Executive Leadership Team (L-R): Chopin Zhang, Edith Bailey, Jaron McVicar, Amanda Hart, David Bortolussi, Yohan Senaratne, Xiao Li,
Eleanor Khor, David Muscat, Kevin Bush.
66
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Amanda Hart
Chief People and Culture Officer
Eleanor Khor
Managing Director – ANZ and Strategy
Bachelor of Business Administration (University of South Australia),
Member of the Australian Institute of Company Directors (MAICD)
Bachelor of Commerce/Bachelor of Laws (Hons)
(University of Melbourne)
Eleanor joined the Company in August 2018, bringing a diverse
range of experience, including her time as a corporate and M&A
lawyer at Allen Linklaters, a management consultant at Bain & Co,
and working in private equity with a focus on consumer goods
businesses.
In May 2023, Eleanor’s role was expanded to Managing Director –
ANZ and Strategy, taking on the leadership of the Australia and New
Zealand business in addition to the Strategy function.
As leader of the ANZ business, Eleanor is responsible for continuing
to grow the Company’s business in Australia and New Zealand to
realise the full potential of the a2 Milk™ brand, with a strong focus
on driving growth through innovation.
Within the strategy function, Eleanor is responsible for developing
corporate and business strategy and the execution of key growth,
performance improvement and potential M&A, joint venture and
alliance initiatives.
Since joining a2MC, Eleanor has spent significant time working
across China and the Asia Pacific regions.
Kevin Bush
Managing Director – USA
B. Comm Marketing (Monash University),
Graduate Certificate Data Analytics (UNSW), Member of
the Australian Institute of Company Directors (MAICD)
Kevin was appointed to the role of Managing Director – USA in
May 2023. Kevin is responsible for leading the Company’s North
American business and continuing to grow the brand and delivering
its path to profitability.
Prior to this, Kevin was Executive General Manager – ANZ from July
2021. In this role, Kevin was responsible for leading the Company’s
business in Australia and New Zealand and the successful launch of
a2 Milk® Lactose Free.
Kevin previously held the role of Sales Director – ANZ from July
2016 and was pivotal in growing the a2 Milk® liquid milk brand and
driving increased market share. He has also overseen the successful
establishment of the a2 Platinum® IMF brand in the South Korean
market and various other business development initiatives across the
Group.
Kevin is a highly experienced sales and marketing professional with
extensive FMCG experience across Australian and UK markets and
has held senior positions with leading consumer goods companies
including Mars, Nestle and McCain Foods.
Amanda joined the Company in September 2021 and has extensive
experience in people and culture roles within consumer products,
telecommunications and media industries.
She is responsible for leading and executing integrated programmes
and initiatives focused on constructive leadership development,
capability building, employee engagement, health and safety,
diversity and inclusion, and cultural change.
Prior to joining the Group, Amanda was previously Head of Human
Resources (Australia and New Zealand) with Dyson Appliances and
has experience in people and culture leadership roles both in the UK
and USA and leading teams across APAC markets.
Xiao Li
Chief Executive – Greater China
Bachelor of Arts in Business Admin, English
(Heilongjiang University), Master, EMBA
(China Europe International Business School)
Xiao joined the Group in April 2019 and is responsible for
maximising the significant opportunities that the Greater China
market presents for the Company, executing against our strategy
and putting the right capabilities in place to deliver on these future
growth opportunities.
Xiao has substantial experience building successful businesses
in China across a diverse range of multinational and local fast
growth consumer driven companies including Shell Company,
Mars, Unilever, Nike, GM of Pousheng (HK listed sport retail), CEO
of Burger King China and in his previous position as President of
Wanda Kids Group and SVP of Wanda Group.
Yohan Senaratne
Managing Director – International
Master (Business Administration) (Kellogg School of Management,
Northwestern University), Bachelor Commerce, Bachelor Business
Systems (Monash University), Member of the Australian Institute
of Company Directors (MAICD)
Yohan is responsible for leading the Company’s cross-border
export business, primarily focused on English label IMF products
manufactured in New Zealand and sold into China, including
liquid milk and other nutritional products. Yohan is responsible for
managing products sold through all channels, principally via the
daigou/reseller/O2O and cross-border e-commerce (CBEC) channels.
The International team is also responsible for developing the
Company’s business in emerging markets.
Yohan brings capability in strategy, marketing, sales and
e-commerce, and experience in infant milk nutrition and adjacent
categories in China.
Yohan joined the Company in 2021 from his most recent role as
Sales and Marketing Director at Bellamy’s Organic. Yohan has also
held multiple positions at Mondelez International, including Head
of e-commerce for Australia, New Zealand and Japan. Prior to this,
Yohan worked at ANZ Bank, focusing on retail banking digital
transformation and with strategy consultancy LEK.
67
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Remuneration
Our remuneration framework is designed to appropriately align with our strategy and
achievement of our short-term and long-term ambitions. The key principles of our
remuneration framework are outlined below.
Market competitive
Business strategy
Provide competitive rewards
to attract, motivate and
retain talented employees
and executives relevant to the
markets in which we operate.
Drive delivery of the
Company’s strategy by
rewarding performance and
having a mix of short-term
and long-term remuneration
elements.
Behaviours
Be consistent with, and
supportive of, the Company’s
ethical framework and
commitment to good
corporate governance.
Shareholder alignment
Link rewards to the creation
of sustainable value for
shareholders, whilst avoiding
inappropriate risk.
Remuneration governance
The People and Remuneration Committee (the Committee) advises
the Board on the policies and practices of the Company regarding
the remuneration of non-executive directors, the Executive
Leadership Team (ELT) (all of whom report directly to the CEO) and
other senior leaders of the Group, and reviews all components of
the Group’s remuneration practices relevant to its employees. The
Committee Charter sets out the objectives, responsibilities and
authority of the Committee in relation to remuneration matters.
The Board’s policy for remunerating the CEO, ELT and other
senior leaders 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 individual reward. The Committee reviews the
remuneration of the CEO, ELT and, as an aggregate, all other
employees at least annually.
The Committee seeks external professional advice from time
to time on remuneration matters. During FY23, external
consultants were engaged to provide market practice information
and benchmarking data. During the year, no remuneration
recommendations were made by external consultants.
Remuneration policies and practices
All employees have a fixed remuneration package. Selected
employees also have variable remuneration in the form of a short-
term incentive (STI) as part of their remuneration package. The ELT
and selected senior leaders also have a long-term incentive (LTI) as
part of their remuneration package.
In FY23, eligible employees not participating in the LTI plan were
entitled to participate in the Company’s Gift Plan, under which
they receive ordinary shares in the Company worth up to A$1,000,
at no cost to the employee. This plan is designed to provide
participating employees an ownership interest in the Company.
Remuneration packages for senior leaders are structured with a
significant portion of variable reward at risk that can be earned
by the achievement of performance outcomes. An appropriate
remuneration mix is determined for each position, taking into
consideration the employee’s role and level of responsibility.
In FY23, the Committee reviewed the CEO’s remuneration
framework. As a result of the review, in the FY23 year the
Company’s STI plan structure for the CEO will include a
percentage of deferral as cash. In the interests of transparency
and good governance, the Board will also voluntarily put the
CEO’s FY24 LTI grant to shareholders as a non-binding vote at
the 2023 Annual Meeting of shareholders.
Managing ELT performance
Robust processes are in place for supporting and evaluating
the performance of the CEO, ELT and other senior leaders.
The Board and CEO determine and agree annual targets and
objectives for the Company based on the Company’s strategic
plan, supported by comprehensive and collaborative operational
planning and financial budgeting processes. The CEO is
accountable to the Board for the delivery of the agreed targets
and objectives.
The targets and objectives agreed between the Board and the
CEO are discussed with, and cascaded to, each member of the
ELT and captured in individual performance plans. The CEO
uses the performance plans to facilitate individual conversations
with each member of the ELT. The performance discussions are
documented and form the basis of the annual performance review
that each ELT member undertakes with the CEO at the end of the
performance period.
The outcome of the ELT’s performance over the course of the
year is one factor considered when any changes to fixed annual
remuneration or any award of variable remuneration and
incentives are determined.
During FY23, each member of the ELT who was an employee for
the duration of the reporting period had at least one performance
discussion documented.
68
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter ELT remuneration framework
The ELT remuneration framework is designed to deliver high performance with substantial components at-risk, with the aim of more
closely aligning remuneration with the Company’s strategy, objectives and risk tolerances as set out below.
The design of the ELT remuneration framework is based on our reward principles and is comprised of three components:
© Fixed Annual Remuneration (FAR) (base salary and statutory superannuation contribution where relevant)
© Short-term Incentive (STI)
© Long-term Incentive (LTI)
FAR
STI
LTI
Variable remuneration
Purpose
Link to strategy
and performance
Provides market competitive
remuneration to attract and
retain talent while reflecting
role scope, impact and
accountabilities
© Based on skills and experience
relevant to the role, individual
performance and current level
of remuneration relative to
remuneration benchmarks
© FAR 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 benchmarks
Incentivises annual achievement
of short-term performance
measures against the Company
balanced scorecard
Aligns reward with the creation
of sustainable, longer-term
shareholder value
© Performance is assessed
against a balanced scorecard,
comprising financial
performance measures and
non-financial performance
measures which align
with the Company’s value
creation model (covering four
key areas: People, Planet,
Consumers and Shareholders)
© Aligns selected executives’
remuneration with the
Company’s strategy and
ambition, designed to create
long-term shareholder value
through sustained growth in
revenue and earnings
Remuneration mix
The following table illustrates the relative percentages of FAR and at-risk STI and LTI for FY23.
CEO
FAR
27%
STI (at target)
LTI (face value)
32%1
41%
ELT (excluding the CEO)
29% – 43%
26% – 33%
32% – 43%
1. 25% of the CEO’s Actual FY23 STI is deferred as cash.
Executive Minimum Shareholding Requirement (Executive MSR)
The Executive MSR Policy applies to all members of the ELT. From time-to-time, additional employees may be identified to
whom the Executive MSR Policy will apply. The purpose of the Executive MSR Policy is to strengthen the alignment between the
interests of the ELT and the interests of shareholders and encourage a focus on building long-term shareholder value.
Each member of the ELT is required to acquire and hold a minimum shareholding equivalent to 100% of their FAR (before any
tax or social security deductions) by the end of five annual vesting periods for LTI grants.
All ELT members are currently expected to achieve the Executive MSR within the timeframe required by the policy.
69
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
REMUNERATION CONTINUED
FY23 Short-Term Incentive (STI) plan
STI values and performance targets are approved by the Committee and Board each financial year. Payments made under the STI plan
are in the form of cash. For FY23, the CEO’s STI will be 75% cash and 25% deferred as cash for one year.
The FY23 STI plan provides that the amount payable will be determined by reference to:
Opportunity
FAR
$
x
Target STI
opportunity
%
x
Group
Performance
Outcome
FY23 Group
performance
scorecard result %
(detailed below)
Individual
Performance
Modifier
Outcome
x
Individual
performance
modifier %
=
STI award
$
The STI plan incorporates a comprehensive assessment of Group performance, encompassing both financial and non-financial measures.
The FY23 Group Performance Scorecard includes financial measures with a weighting of 60% and non-financial measures with a
weighting of 40%, as set out in the table below. For each objective there are threshold, target and maximum metrics (as shown in the
table below) to assess the Group’s performance against. The outcomes are determined by the Board (excluding the CEO).
FY23 Group Performance Scorecard
FY23 strategic objectives
Metric
Outcome
Weighting
at target
Financial measures
Shareholders
Net sales revenue
THRESHOLD
TARGET
MAXIMUM
Non-financial measures
People
Planet
Brand health
Market share
Innovation
Supply chain
s
r
e
m
u
s
n
o
C
Earnings before interest, tax,
depreciation and amortisation (EBITDA)
Safety performance and
employee engagement score
Employee rating of a2MC sustainability
impact, and progress on packaging and
Scope 3 GHG emissions goals
China unprompted brand awareness,
Australian fresh milk loyalty and USA
household penetration (with most
weight placed on China outcomes)
China label IMF (MBS and DOL),
English label IMF (CBEC, Daigou, O2O),
Australian fresh milk and USA premium
liquid milk (with most weight placed on
China outcomes)
China label new GB formulation
registration, progress on innovation
pipeline and sales from new products
(China, ANZ, USA)
Market access, CL and EL inventory
management, MVM insourcing, quality
outcomes and supply chain efficiency
60%
30%
30%
40%
5%
5%
5%
5%
10%
10%
Scorecard outcome (% of target)
95%
The FY23 STI plan provided threshold to maximum potential metrics for the Group Performance Scorecard with outcomes ranging from
0% to 130%, with the target at 100%. The outcome of the FY23 Group Performance Scorecard determined by the Board for all ELT
members (including the CEO) was 95%, reflecting that an outcome of 55% (of 60%) was achieved against financial measures and an
outcome of 40% (of 40%) was achieved against non-financial measures. This reflects the outcomes determined by the Board in relation
to the individual Group Performance Scorecard measures set out in the table above.
70
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter FY23 Long-Term Incentive (LTI) plan
The table below outlines key features of the FY23 LTI for the CEO and ELT.
Features
Purpose
Participants
Approach
© The LTI plan is designed to reward performance in support of the achievement of the Company’s
growth strategy: targeting profitable, long-term revenue and EPS growth, which requires appropriate
investment
© Participation in the LTI plan is by invitation only, at the sole and absolute discretion of the Board
© In FY23, the CEO, ELT and selected senior leaders participated
Opportunity
© The maximum face value of the LTI that can be granted for the CEO is 150% of FAR, and for the ELT,
ranges from 75% to 150% of FAR. The minimum potential outcome value is zero
Performance/vesting
period
© Three years from 1 July 2022 to 30 June 2025
© There is no retesting of performance if performance conditions are not met at the end of the
performance period
Instrument
© Performance rights – each performance right entitles the participant to receive one fully paid share in
the Company (or cash equivalent, at the election of the Company), subject to meeting performance
measures
© It is currently intended that, where possible in accordance with relevant laws, the Company will
satisfy its obligation to allocate ordinary shares upon the vesting of performance rights by instructing
the trustee of the a2MC Group Employee Share Trust to transfer existing shares held in the trust to
each participant, where such existing shares were previously purchased by the trustee on-market
Allocation approach
© The Company uses a maximum face value allocation approach. The number of rights granted were
calculated as follows:
Grant opportunity
Share price
Number of
rights
FAR
$
x
Maximum LTI
opportunity %
/
Share price1
(no discount
applied)
=
Number of
performance
rights granted
1. The share price used was the volume weighted average share price of ordinary shares in the Company in accordance with
the ASX listing rules based on the ten trading days up to and including 19 September 2022.
Dividend payments
© No dividends or dividend equivalent payments are provided on performance rights
Board discretion
© The Board may forfeit performance rights for fraud, dishonesty or wilful breach of duties
71
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
REMUNERATION CONTINUED
Performance conditions
The performance rights vest subject to achievement of both:
© EPS CAGR (compound annual growth in diluted earnings per ordinary share); and
© Revenue CAGR (compound annual growth in revenue), performance hurdles over the performance
period.
Vesting Framework
For any vesting to occur, both of the following must be achieved:
© EPS CAGR of at least 10%; and
© Revenue CAGR of at least 6%,
in each case, from 1 July 2022 to 30 June 2025.
If these performance hurdles are achieved, the proportion of performance rights that may vest will be
determined on a straight-line basis per the table below:
Revenue - CAGR
Vesting % (if EPS CAGR of at least 10%)
Less than 6%
6%
Nil
50%
Between 6% and 8%
Pro-rata vesting on a straight-line basis between 50% and 85%
8%
85%
Between 8% and 10%
Pro-rata vesting on a straight-line basis between 85% and 100%
10% and above
100%
Calculation approach
EPS CAGR and Revenue CAGR are derived from the annual report of the Company for the relevant
financial years and are subject to adjustment to remove the impact of material items as the Board may
determine, as further noted below.
Performance rights granted in FY23
During the year the Board authorised the grant of 2,472,270 performance rights to the CEO, ELT and senior leaders under the LTI plan in
respect of FY23.
Further details on the current LTI plan and previous plans can be found at Note F2 to the financial statements.
The Board also considered the impact of the on-market share buyback completed in March 2023 when setting the FY23 LTI grant EPS
CAGR performance hurdle, which was determined to be immaterial.
Normalisation adjustments
Relevant STI and LTI metrics are adjusted to remove the impact of material items as the Board may determine in its absolute discretion
to normalise results (up or down) to more appropriately reflect underlying performance. Without limitation, adjustments may be made
to exclude the impact of unusual or one-off items, discontinued operations, acquisitions and disposals, and capital management. No
normalisation adjustments were made to STI and LTI metrics in FY23.
72
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Remuneration of CEO – David Bortolussi
David commenced his appointment as Managing Director and CEO on 8 February 2021. Details of his remuneration arrangements are
set out below:
Term
There is no fixed term. David’s employment is ongoing until terminated by either David or the Company.
Fixed Annual Remuneration
A$1,867,666 per annum (inclusive of superannuation), to be reviewed annually.
STI
On an annual basis, David participates in the Company’s STI plan. For FY23, his STI incentive target is 120% of his FAR, subject to the
achievement of the Group Performance Scorecard and individual performance objectives both determined by the Board (excluding
David). In FY23, the Group Performance Scorecard outcome range is from 0% to 130% and David’s individual performance multiplier
range is from 0% to 130% which is consistent with the prior year.
In FY23, the Board revised the Company’s STI plan structure, for the CEO, to include a percentage of deferral for the CEO’s STI. In FY23,
payment of 25% of the amount awarded to the CEO is deferred as cash for one year. No remuneration adjustment was applied to the
CEO’s total remuneration package to compensate for this change.
David’s STI payment in FY23 is determined in accordance with the following:
FAR
$
x
Target STI
opportunity
120%
x
FY23 Group
Performance
Scorecard result %
x
Individual
performance
modifier
%
=
STI award
$
75% of David’s STI payment will be paid in cash shortly following the Board’s determination and the remaining 25% paid in cash after
one year.
LTI
Subject to Board discretion, on an annual basis David will be invited to be granted performance rights under the Company’s LTI plan. To
date, performance rights issued to David have been issued on the basis that they may only be satisfied on exercise with ordinary shares
purchased on-market.
As noted above, the Board will also be submitting the CEO’s LTI grant for the FY24 LTI plan to shareholders as a non-binding vote at the
Annual Meeting in 2023.
Allowance
An allowance of A$10,000 per month (net of tax) is paid to assist David with the cost of his accommodation in Sydney and travel
between Melbourne and Sydney.
Notice period
Generally, resignation by David requires six months’ notice and termination (other than for cause) by the Company requires twelve
months’ notice.
Leave
Five weeks per annum paid annual leave.
Other terms
The agreement also includes standard terms covering expense reimbursement, conflicts of interest, confidentiality, intellectual property
and moral rights, clawbacks and restraints upon termination (which address non-competition, as well as non-solicitation of employees,
customers and suppliers).
73
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
REMUNERATION CONTINUED
Remuneration received in FY23
The remuneration received by David Bortolussi in the financial year is outlined in the table below. We believe presenting this information
provides shareholders with greater clarity and transparency as to the CEO’s remuneration. This table differs from the statutory accrued
remuneration table (further below) which presents remuneration in accordance with accounting standards (i.e., on an accruals basis).
Remuneration received
FAR
STI paid
Allowance
LTI
Other equity
Total remuneration received
2023
A$
1,867,666
2,251,031
226,416
–
1,042,795
5,387,908
The remuneration accrued for David Bortolussi in the financial year was as follows:
Statutory remuneration accounting expense
FAR
Cash STI
Allowance
LTI
Other equity
Total remuneration
2023
A$
1,867,666
2,129,140
226,416
3,583,205
476,748
8,283,175
2022
A$
1,795,082
630,000
226,416
–
916,731
3,568,229
2022
A$
1,795,082
2,251,031
226,416
2,013,392
1,772,585
8,058,506
As noted above, for FY23, David is entitled to receive an STI payment at target of 120% of his FAR modified for Group and individual
performance. The Board has determined that the Group Performance Scorecard outcome is 95% and David’s individual performance
multiplier is 100%. As a result, a payment in the amount of A$2,129,140 is to be made to David under the FY23 STI plan representing
95% of target, with 25% to be deferred and paid as cash after one year.
LTI – granted in FY23
In FY23, 501,180 performance rights vesting in August 2025 were granted to David under the Company’s LTI Plan.
Time-based rights – transition benefits
In FY21, David was granted 311,283 time-based rights as a transition benefit, when the share price was NZ$11.07, being partial
compensation for vested and unvested entitlements that he forfeited on resigning from his previous employment.
Of these time-based rights, 155,642 vested on 21 February 2022, when the share price was NZ$6.31; and the remaining 155,641 rights
vested on 1 February 2023, when the share price was NZ$7.52.
Other than to meet any tax obligations, no shares held by David can be sold until he holds sufficient shares to meet the Company’s
minimum shareholding requirement under the MSR Policy.
74
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Non-executive directors’ remuneration policy and structure
Non-executive director fees are paid from an aggregate annual fee pool of $1,365,000, as approved by shareholders at the Annual
Meeting on 20 November 2018. Non-executive directors do not receive variable pay.
The table below provides a summary of FY23 Board and Committee fees:
Board of Directors
Audit & Risk Management Committee
People & Remuneration Committee
Nomination Committee
Position
Chair
Deputy Chair
Member
Chair
Member
Chair
Member
Chair
Member
Fees per annum
$
265,0001
210,0002
165,000
35,000
16,500
35,000
16,500
22,000
11,000
1 No additional fees are paid to the Board Chair for Committee roles.
2 Following the current Deputy Chair’s retirement on 30 June 2023, from 1 July 2023, there will no longer be a Deputy Chair.
Remuneration paid to non-executive directors of the Company for the year ended 30 June 2023 was as follows:
Committee fees
Board fees
Audit & Risk
Management
People &
Remuneration
Nomination
Total fees
$
265,000
210,000
165,000
165,000
165,000
137,500
13,750
1,121,250
$
–
35,000
–
16,500
16,500
13,750
1,375
83,125
$
–
–
16,500
35,000
16,500
13,750
–
81,750
$
–
11,000
22,000
–
–
–
–
$
265,000
256,000
203,500
216,500
198,000
165,000
15,125
33,000
1,319,125
David Hearn (Chair)
Julia Hoare (Deputy Chair)
Pip Greenwood
Warwick Every-Burns
Sandra Yu
David Wang1
Kate Mitchell2
Total
1 David Wang was appointed as a non-executive director with effect from 1 September 2022.
2 Kate Mitchell was appointed as a non-executive director with effect from 1 June 2023.
No other benefits such as share options or special exertion payments were paid to directors.
No director of a subsidiary company was remunerated in their capacity as a director.
Director Minimum Shareholding Requirement
A Minimum Shareholding Requirement (Director MSR) Policy applies to all directors. The purpose of this MSR Policy is to strengthen
the alignment between the interests of directors and the interests of shareholders and encourage a focus on building long-term
shareholder value. Under this policy, directors are required to acquire and hold, for the duration of their tenure on the board, a minimum
shareholding equivalent in value (at the time of purchase) to 100% of their fixed annual director fees (including committee fees) before
any tax or social security deductions. Directors are expected to achieve the Director MSR within three years of becoming a director.
75
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial
statements
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
77
78
83
84
86
87
88
76
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Directors’ approval of the financial statements
for the year ended 30 June 2023
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 2023.
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 2023 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
judgements 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 E1 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
20 August 2023
David Bortolussi
Managing Director and CEO
77
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Independent auditor’s report
for the year ended 30 June 2023
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
Report on the audit of the financial statements
Opinion
We have audited the financial statements of The a2 Milk Company Limited (the “Company”) and its
subsidiaries (together the “Group”) on pages 83 to 134, which comprise the consolidated statement
of financial position of the Group as at 30 June 2023, 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 83 to 134 present fairly, in all material
respects, the consolidated financial position of the Group as at 30 June 2023 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 and assurance 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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
78
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
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.
Customer rebates and promotional allowances
Why significant
Revenue and associated trade receivables are
recognised net of 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 variable rebates and the
expected level of rebate claims by
the customers.
This was considered a key audit matter given the
value of 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 and promotional allowances are
included in note B2 to the financial statements.
How our audit addressed the key audit matter
Our audit procedures included the following:
► Considered the appropriateness of the
Group’s revenue recognition accounting
policies as they relate to rebates and
promotional allowances.
► Understood the Group’s processes and
controls over the recording of rebates
and promotional allowances.
► Selected a sample of customer
contracts, determined whether variable
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 variable 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 rebates and promotional allowances
and inquired as to the likelihood of aged
balances being settled.
► Considered the adequacy of the
associated disclosures in the financial
statements.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
79
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
INDEPENDENT AUDITOR’S REPORT CONTINUED
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 entity, 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 Glenn Maris.
Ernst & Young
Sydney
20 August 2023
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
80
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
Independent ESG Assurance Report
for the year ended 30 June 2023
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
Limited Assurance Report to the Management and Directors of The a2 Milk
Company Limited
Our Conclusion:
Ernst & Young (‘EY’, ‘we’) were engaged by The a2 Milk Company Limited (‘a2MC’) to undertake a limited assurance
engagement as defined by Australian Auditing Standards, hereafter referred to as a ‘review’, over the Subject Matter
defined below for the year ended 30 June 2023. Based on the procedures we have performed and the evidence we
have obtained, nothing has come to our attention that causes us to believe the Subject Matter has not been prepared,
in all material respects, in accordance with the Criteria defined below.
What our review covered
We reviewed the following Subject Matter listed below and
disclosed within a2MC’s 2023 Annual Report (the
‘Report’).
Sustainability Performance Data
Value
Climate – greenhouse gas (GHG) emissions
Total Scope 1 emissions in tonnes of
carbon dioxide equivalent (tCO2-e)
24,343
Criteria applied by a2MC
In preparing the sustainability performance data relating
to GHG emissions, a2MC applied the following Criteria:
The Greenhouse Gas (GHG) Protocol, as well as the
►
National Greenhouse Accounts Factors for Australia,
the UK DEFRA GHG conversion factors and a range of
other country-specific and source-specific references
utilised for determining GHG emissions.
In preparing the remaining sustainability performance
data, a2MC applied the following Criteria:
Total Scope 2 emissions (tCO2-e) as
calculated using the location-based
method
Total Scope 2 emissions (tCO2-e) as
calculated using the market-based
method
3,356
►
a2Mc’s own publicly disclosed criteria stated in the
Report and informed by the GRI Standards.
153
In preparing the sustainability disclosures within the
Report for the purposes of reporting with reference to the
GRI Standards, a2MC applied the following Criteria:
Total Scope 3 emissions (tCO2-e)
476,595
►
The GRI Standards 2021.
Environmental indicators – Manufacturing Facilities
Key responsibilities
Total water usage (‘000 litres)
Water efficiency (litres/litre of milk)
Wastewater diverted to beneficial
land application (litres)
Waste produced (tonnes)
Waste diversion (%)
290,908
1.7
2,780,010
100
96.7%
Energy consumption (kWh)
16,700,000
Environmental indicators – Sustainable packaging
Recyclable packaging (%)
87.1%
People – Supporting a diverse and inclusive workplace
Gender diversity – Female (%)
51%
Community – Enriching communities
Cash and stock donations (NZ$)
$2.84m
We also reviewed a2MC’s reporting with reference to the
Global Reporting Initiative (‘GRI’) Standards (2021).
EY’s responsibility and independence
Our responsibility is to express a conclusion on the
Subject Matter based on our review.
We have complied with the independence and relevant
ethical requirements, which are founded on fundamental
principles of integrity, objectivity, professional
competence and due care, confidentiality and
professional behaviour.
The firm applies Auditing Standard ASQM 1 Quality
Management for Firms that Perform Audits or Reviews of
Financial Reports and Other Financial Information, or
Other Assurance or Related Services Engagements, which
requires the firm to design, implement and operate a
system of quality management including policies or
procedures regarding compliance with ethical
requirements, professional standards and applicable legal
and regulatory requirements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
81
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
INDEPENDENT ESG ASSURANCE REPORT CONTINUED
a2MC’s responsibility
a2MC’s management is responsible for selecting the
Criteria, and for presenting the Subject Matter in
accordance with that Criteria, in all material respects.
This responsibility includes establishing and maintaining
internal controls, maintaining adequate records and
making estimates that are relevant to the preparation of
the subject matter, such that it is free from material
misstatement, whether due to fraud or error.
Our approach to conducting the review
We conducted this review in accordance with the
Australian Auditing and Assurance Standards Board’s
Australian Standard on Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information
(‘ASAE 3000’), Assurance Engagements on Greenhouse
Gas Statements (‘ASAE3410’) and the terms of reference
for this engagement as agreed with a2MC on 6th June
2023. That standard requires that we plan and perform
our engagement to express a conclusion on whether
anything has come to our attention that causes us to
believe that the Subject Matter is not prepared, in all
material respects, in accordance with the Criteria, and to
issue a report.
Summary of review procedures performed
A review consists of making enquiries, primarily of
persons responsible for preparing the Subject Matter and
related information and applying analytical and other
review procedures.
The nature, timing, and extent of the procedures selected
depend on our judgement, including an assessment of the
risk of material misstatement, whether due to fraud or
error. The procedures we performed included, but were
not limited to:
► Conducted interviews with key personnel to
understand the business and reporting process
► Conducted interviews with key personnel to
understand the process for collecting, collating and
reporting the Subject Matter during the reporting
period
► Checked that the calculation criteria have been
correctly applied in accordance with the
methodologies outlined in the Criteria
► Undertook analytical review procedures to support
the reasonableness of the data
►
►
Identified and tested assumptions supporting
calculations
Tested, on a sample basis, underlying source
information to check the accuracy of the data
► Checked the aggregation of selected disclosures and
transcription to the Report
► Checked the appropriateness of the presentation
relating to the Subject Matter in the Report.
We believe that the evidence obtained is sufficient and
appropriate to provide a basis for our review conclusion.
Inherent limitations
Procedures performed in a review engagement vary in
nature and timing from, and are less in extent than for a
reasonable assurance engagement. Consequently, the
level of assurance obtained in a review engagement is
substantially lower than the assurance that would have
been obtained had a reasonable assurance engagement
been performed. Our procedures were designed to obtain
a limited level of assurance on which to base our
conclusion and do not provide all the evidence that would
be required to provide a reasonable level of assurance.
While we considered the effectiveness of management’s
internal controls when determining the nature and extent
of our procedures, our assurance engagement was not
designed to provide assurance on internal controls. Our
procedures did not include testing controls or performing
procedures relating to assessing aggregation or
calculation of data within IT systems.
The GHG quantification process is subject to scientific
uncertainty, which arises because of incomplete scientific
knowledge about the measurement of GHGs. Additionally,
GHG procedures are subject to estimation and
measurement uncertainty resulting from the
measurement and calculation processes used to quantify
emissions within the bounds of existing scientific
knowledge.
Other matters
We have not performed assurance procedures in respect
of any information relating to prior reporting periods,
including those presented in the Subject Matter. Our
report does not extend to any disclosures or assertions
made by a2MC relating to future performance plans
and/or strategies disclosed in the Report.
Use of our Assurance Report
We disclaim any assumption of responsibility for any
reliance on this assurance report to any persons other
than Management and the Directors of a2MC, or for any
purpose other than that for which it was prepared.
Nicky Landsbergen
Ernst & Young
Sydney, Australia
20 August 2023
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
82
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
Consolidated statement of comprehensive income
for the year ended 30 June 2023
Sales
Cost of sales
Gross margin
Other revenue
Distribution expenses
Marketing expenses
Administrative and other expenses
Operating profit
Interest income
Finance costs
Net finance income
Profit before tax
Income tax expense
Profit for the year
Profit/(loss) for the year attributable to:
Owners of the Company
Non-controlling interests
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation (loss)/profit
Cash flow hedges fair value profit/(loss)
Items not to be reclassified to profit or loss:
Listed investment fair value loss
Total other comprehensive loss
Total other comprehensive (loss)/income attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income
Total comprehensive income/(loss) attributable to:
Owners of the Company
Non-controlling interests
Earnings per share
Basic (cents per share)
Diluted (cents per share)
The accompanying notes form part of these financial statements.
Note
B1
B1
B4
B6
C7
B5
B5
2023
$’000
2022
$’000
1,591,088
1,443,740
(851,925)
739,163
1,782
(50,832)
(260,229)
(228,663)
201,221
26,733
(5,092)
21,641
222,862
(78,021)
144,841
155,638
(10,797)
144,841
(6,448)
12,368
(63,295)
(57,375)
(58,270)
895
(57,375)
(780,222)
663,518
2,489
(48,854)
(230,019)
(209,725)
177,409
6,569
(2,591)
3,978
181,387
(66,646)
114,741
122,624
(7,883)
114,741
11,073
(14,113)
(22,543)
(25,583)
(24,471)
(1,112)
(25,583)
87,466
89,158
97,368
(9,902)
87,466
21.23
21.13
98,153
(8,995)
89,158
16.49
16.49
83
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Consolidated statement of changes in equity
for the year ended 30 June 2023
Attributable to owners of the Company
n
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Year ended
30 June 2023
Balance 1 July 2022
(332)
(153,521)
46,311
(15,798)
(13,001)
(136,341) 1,167,561
149,157 1,180,377
13,583 1,193,960
Profit after tax for
the period
Foreign currency
translation differences
- foreign operations
Changes in cash flow
hedges taken to equity
Cash flow hedges
reclassified to profit
or loss
Listed investment -
fair value movement
–
(6,065)
–
–
–
–
–
–
–
(63,295)
Income tax
(383)
–
Total comprehensive
income for the period
Transactions with owners
in their capacity as
owners:
Share buyback
Treasury shares
transferred
Share-based payments
Total transactions
with owners
(6,448)
(63,295)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,196)
2,196
17,132
–
14,936
2,196
–
–
–
–
–
–
–
155,638
–
155,638
(10,797) 144,841
(6,065)
(2,559)
(2,559)
17,449
17,449
–
(63,295)
(3,417)
(3,800)
–
–
–
–
–
11,473
(58,270) 155,638
–
–
–
–
–
–
(6,065)
–
(6,065)
(2,559)
(167)
(2,726)
17,449
1,062
18,511
(63,295)
(3,800)
–
–
(63,295)
(3,800)
97,368
(9,902)
87,466
– (149,057)
(149,057)
– (149,057)
–
–
17,132
–
–
–
–
–
17,132
–
–
–
–
17,132
(131,925)
17,132
– (149,057)
(131,925)
Balance 30 June 2023
(6,780)
(216,816)
61,247
(13,602)
(1,528)
(177,479) 1,323,199
100 1,145,820
3,681 1,149,501
The accompanying notes form part of these financial statements.
84
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
Consolidated statement of changes in equity
for the year ended 30 June 2023
Attributable to owners of the Company
n
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Year ended
30 June 2022
Balance 1 July 2021
(11,405) (130,978) 36,058
(3,773)
–
(110,098) 1,044,937
149,121 1,083,960
– 1,083,960
–
–
–
–
–
– 122,624
–
122,624
(7,883) 114,741
Income tax
619
–
Profit after tax for
the period
Foreign currency
translation differences
- foreign operations
Changes in cash flow
hedges taken to equity
Cash flow hedges
reclassified to
profit or loss
Listed investment -
fair value movement
Total comprehensive
income for the period
Transactions with owners
in their capacity as
owners:
Issue of ordinary shares
Share issue costs
Employee withholding
tax payments
Treasury shares
purchased
Treasury shares
transferred
Share-based payments
Acquisition of subsidiary
(Note E2)
Income tax
Total transactions
with owners
10,454
–
–
–
–
–
–
(22,543)
11,073
(22,543)
–
–
–
–
–
–
–
–
(250)
–
–
–
–
–
–
–
–
–
–
(13,306)
(1,281)
1,281
11,701
–
83
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,454
(21,632)
(21,632)
4,872
4,872
–
(22,543)
3,759
4,378
–
–
–
–
–
(13,001)
(24,471) 122,624
–
–
–
–
–
–
10,454
–
10,454
(21,632)
(1,727)
(23,359)
4,872
615
5,487
(22,543)
4,378
–
–
(22,543)
4,378
98,153
(8,995)
89,158
–
–
–
–
–
–
–
–
–
–
–
(250)
(13,306)
–
11,701
–
83
(1,772)
–
–
–
–
–
–
–
–
–
45
(9)
45
(9)
–
(250)
–
(13,306)
–
11,701
–
–
–
–
–
–
–
–
–
–
45
(9)
(250)
(13,306)
–
11,701
–
83
22,578
22,578
–
83
–
10,253
(12,025)
36
(1,736)
22,578
20,842
Balance 30 June 2022
(332)
(153,521)
46,311
(15,798)
(13,001)
(136,341) 1,167,561
149,157 1,180,377
13,583 1,193,960
The accompanying notes form part of these financial statements.
85
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Consolidated statement of financial position
as at 30 June 2023
Note
2023
$’000
2022
$’000
Assets
Current assets
Cash and term deposits
Trade and other receivables
Prepayments
Inventories
Other financial assets
Income tax receivable
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Investment property
Intangible assets
Other financial assets
Prepayments
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Loans and borrowings
Income tax payable
Other financial liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Lease liabilities
Loans and borrowings
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity attributable to owners of the Company
Non-controlling interests
Total equity
The accompanying notes form part of these financial statements.
86
D3
C1
C2
C7
C4
D5
C5
C6
C7
B6
C3
D5
D6
C8
C3
D5
D6
C8
D7
D8
802,234
79,216
45,682
193,440
1,536
–
887,308
83,510
54,537
140,044
–
5,841
1,122,108
1,171,240
245,216
17,349
17,927
108,419
72,078
–
28,617
489,606
1,611,714
313,212
4,181
15,000
43,314
3,501
379,208
423
15,309
67,038
235
83,005
462,213
240,547
16,030
15,663
109,322
135,260
2,059
25,731
544,612
1,715,852
379,253
3,128
40,794
–
16,999
440,174
416
14,224
66,206
872
81,718
521,892
1,149,501
1,193,960
100
1,323,199
(177,479)
149,157
1,167,561
(136,341)
1,145,820
1,180,377
3,681
13,583
1,149,501
1,193,960
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Consolidated statement of cash flows
for the year ended 30 June 2023
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 investment property
Payments for intangible assets
Acquisition of subsidiary
Payments for term deposits
Receipts from term deposits
Net cash outflow from investing activities
Cash flows from financing activities
Payments for share buyback
Payments of lease principal
Purchase of treasury shares
Proceeds from issue of equity shares
Net (repayments of)/proceeds from borrowings
Net cash (outflow)/inflow from financing activities
Net decrease in cash and short-term deposits
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.
Note
2023
$’000
2022
$’000
1,619,580
1,431,254
(1,492,140)
(1,207,386)
22,420
(3,663)
(34,914)
111,283
(10,069)
(3,535)
(338)
–
(450,000)
450,000
(13,942)
(149,057)
(3,578)
–
–
(25,794)
(178,429)
(81,088)
437,308
(3,986)
352,234
D4
C5
C6
E2
D7
D5
D8
D7
D3
4,341
(1,383)
(23,026)
203,800
(4,939)
(1,071)
(229)
(213,746)
(450,000)
–
(669,985)
–
(4,089)
(13,306)
36
27,000
9,641
(456,544)
875,150
18,702
437,308
87
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Notes to the financial statements
Contents
A
B
B1
B2
B3
B4
B5
B6
C
C1
C2
C3
C4
C5
C6
C7
C8
D
D1
D2
D3
D4
D5
D6
D7
D8
D9
Basis of preparation
Group performance
Operating segments
Revenue
Expenses
Finance costs
Earnings per share (EPS)
Income taxes
Operating assets and liabilities
Trade and other receivables
Inventories
Trade and other payables
Property, plant and equipment
Investment property
Intangible assets
Other financial assets
Other financial liabilities
Financial risk and capital management
Financial risk management
Capital management
Cash and term deposits
Cash flow information
Leases
Loans and borrowings
Share capital
Nature and purpose of reserves
Capital expenditure commitments
D10 Contingent liabilities
E
E1
E2
E3
F
F1
F2
F3
F4
Group structure
Consolidated entities
Business combinations
Deed of cross guarantee
Other disclosures
Related party transactions
Share-based payments
Auditor’s remuneration
Subsequent events
88
Page
89
90
90
93
94
94
95
95
99
99
99
100
101
103
105
108
109
110
110
117
117
118
119
122
123
124
125
125
126
126
127
128
130
130
131
134
134
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Basis of preparation
for the year ended 30 June 2023
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 2023 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 New Zealand’s Exchange
(NZX), the Australian Securities Exchange (ASX) and Cboe Australia
(CXA). 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 naturally
containing the A2-type protein.
The consolidated financial statements were authorised for
issue by the directors on 20 August 2023.
The consolidated financial statements:
– Have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand;
– Comply with the New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS);
– Comply with International Financial Reporting Standards (IFRS)
adopted by the International Accounting Standards Board (IASB);
– Are 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
– Have been prepared in accordance with the historical cost
convention and, except for listed investments and foreign
currency forward contracts, do not take into account changing
money values or fair values of assets.
Certain comparative amounts have been reclassified 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
– 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 Consolidated 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 B6: Income taxes – Recoverability and recognition of
deferred tax assets and liabilities
– Note C2: Inventories – Estimation of net realisable value
– Note C4: Property, plant and equipment – Recoverability
and determination of useful lives
– Note C5: Investment property – Recoverability and
determination of useful lives
– Note C6: Intangible assets – Impairment review of goodwill
and intangibles
– Note C6: Intangible assets – Allocation of goodwill
– Note C7 and C8: Other financial assets and liabilities – Fair
value measurement of foreign currency forward contracts
– Note D5: Leases – Determination of lease term
Changes in significant accounting policies
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. Their application has not had
any material impact on the Group’s assets, profits or earnings
per share for the year ended 30 June 2023.
New standards and interpretations not yet adopted
There are no new standards and interpretations that are issued,
but not yet effective as at 30 June 2023, that are expected to
have a material impact on the Group in current or future
reporting periods.
89
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group performance
for the year ended 30 June 2023
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 the
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, and in the current financial
year has four reportable operating segments as follows:
– The Australia and New Zealand segment receives external
revenue from infant milk formula, milk and other nutritional
products along with rent, royalty and licence fee income.
– The China and Other Asia segment receives external revenue
from infant milk formula, milk and other nutritional products.
– The USA segment receives external revenue from milk sales
and licence fees.
– The Mataura Valley Milk segment receives external revenue
from the manufacturing and sale of nutritional and
commodity products.
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.
90
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter B1. Operating segments (continued)
2023
Consolidated sales
Other revenue
Total external revenue
Inter-segment revenue
Australia and
New Zealand
$’000
China and
Other Asia
$’000
USA
$’000
Mataura
Valley Milk
$’000
Eliminations
$’000
370,249
1,002,164
104,731
113,944
1,445
–
337
371,694
1,002,164
105,068
–
–
–
–
113,944
32,270
146,214
Total
$’000
1,591,088
1,782
1,592,870
–
–
–
(32,270)
–
(32,270)
1,592,870
Reportable segment revenue
371,694
1,002,164
105,068
Reportable segment results
(Segment EBITDA)
Corporate EBITDA
Group EBITDA
Interest income
Interest expense
Depreciation and amortisation
Income tax expense
Consolidated profit after tax
2022
Consolidated sales
Other revenue
Total external revenue
Inter-segment revenue
93,506
254,055
(23,311)
(26,486)
–
Australia and
New Zealand1
$’000
China and
Other Asia
$’000
USA
$’000
Mataura
Valley Milk2
$’000
Eliminations
$’000
530,508
726,498
82,384
104,350
2,218
–
271
–
532,726
726,498
82,655
104,350
–
–
–
297,764
(78,466)
219,298
26,733
(4,972)
(18,197)
(78,021)
144,841
Total
$’000
1,443,740
2,489
1,446,229
–
–
–
4,543
(4,543)
–
Reportable segment revenue
532,726
726,498
82,655
108,893
(4,543)
1,446,229
Reportable segment results
(Segment EBITDA)
Corporate EBITDA
Group EBITDA
Interest income
Interest expense
Depreciation and amortisation
Income tax expense
Consolidated profit after tax
173,210
145,078
(36,677)
(18,795)
–
262,816
(66,602)
196,214
6,569
(2,467)
(18,929)
(66,646)
114,741
1 Revenue for the year ended 30 June 2022 included one customer within the Australia and New Zealand segment that contributed revenue in excess of 10% of
Group revenue of $175,391,000.
2 Mataura Valley Milk results for the year ended 30 June 2022 are for the eleven months from acquisition on 30 July 2021.
91
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group performance
for the year ended 30 June 2023
B1. Operating segments (continued)
Other segment information
2023
Additions to non-current assets
Depreciation and amortisation
2022
Additions to non-current assets
Depreciation and amortisation
Geographical information
Australia and
New Zealand
$’000
China and
Other Asia
$’000
7,716
4,168
3,595
5,098
5,118
1,885
88
2,223
USA
$’000
17
564
44
505
Mataura
Valley Milk
$’000
Corporate
$’000
6,289
9,006
2,220
8,420
7,197
2,574
3,913
2,683
Total
$’000
26,337
18,197
9,860
18,929
Revenue from external customers based on the location of the customer
New Zealand1
Australia
China
Other
Non-current assets based on the geographical location of assets2
New Zealand
Australia
China
Other
2023
$’000
2022
$’000
129,798
355,841
985,257
121,974
138,874
498,203
714,133
95,019
1,592,870
1,446,229
234,640
44,535
4,982
2,407
286,564
233,553
42,779
1,935
2,886
281,153
1 Mataura Valley Milk revenue for the year ended 30 June 2022, which is included in New Zealand revenue, is for the eleven months from acquisition on 30 July
2021.
2 Non-current assets exclude goodwill, financial instruments and deferred tax assets.
92
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter B2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical location (reportable segments) and major product types.
2023
Infant milk formula:
China label
English and other labels1
Liquid milk
Other2
2022
Infant milk formula:
China label
English and other labels1
Liquid milk
Other2
Australia and
New Zealand
$’000
China and
Other Asia
$’000
–
162,508
184,094
25,092
371,694
559,336
386,226
15,159
41,443
1,002,164
Australia and
New Zealand
$’000
China and
Other Asia
$’000
–
328,819
171,964
31,943
532,726
437,591
255,761
11,092
22,054
726,498
USA
$’000
–
–
104,731
337
105,068
USA
$’000
–
–
82,384
271
82,655
Mataura
Valley Milk
$’000
–
–
–
113,944
113,944
Mataura
Valley Milk
$’000
–
–
–
104,350
104,350
Total
$’000
559,336
548,734
303,984
180,816
1,592,870
Total
$’000
437,591
584,580
265,440
158,618
1,446,229
1 Revenue is allocated based on management responsibility and usually reflects the geographical location of the Group’s wholesale customers. It is understood that
the majority of the infant milk formula sales to customers in the Australia and New Zealand segment are ultimately consumed in China.
2 Other predominantly consists of the sale of milk powders and other nutritional products.
Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers.
Receivables
Customer contract liabilities
Note
C1
C3
2023
$’000
57,731
(7,487)
2022
$’000
67,411
(3,171)
Customer contract liabilities are payments received in advance from customers. The amount of $3,171,000 recognised in customer
contract liabilities at 30 June 2022 was recognised as revenue in the year ended 30 June 2023.
Remaining performance obligations at 30 June 2023 have an original expected duration of one year or less.
93
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group performance
for the year ended 30 June 2023
B2. Revenue (continued)
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
the A2-type protein, to wholesale customers; and manufactures nutritional and commodity products for sale 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 offsetting 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 customers,
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.
B3. Expenses
Profit before income tax includes the following significant items:
Salary and wage costs
Equity settled share-based payments (refer to Note F2)
Directors’ fees
Audit fees (refer to Note F3)
Bad and doubtful debts (recovery)/expense
Insurance
Professional service fees
Depreciation and amortisation
Net foreign exchange (gains)/losses
Cash flow hedge losses
B4. Finance costs
Interest expense – lease liabilities
Interest expense
Finance costs
94
2023
$’000
98,366
17,132
1,319
1,515
(78)
24,514
12,152
18,197
(8,853)
18,511
2023
$’000
640
4,332
120
5,092
2022
$’000
84,246
11,701
1,074
1,695
30
22,069
13,757
18,929
6,436
5,487
2022
$’000
592
1,875
124
2,591
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter B5. Earnings per share (EPS)
Profit attributable to members of the Company used in calculating basic and diluted EPS ($’000)
Weighted average number of ordinary shares (‘000) for basic EPS
Effect of dilution due to 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)
2023
155,638
733,065
3,610
736,675
21.23
21.13
2022
122,624
743,618
176
743,794
16.49
16.49
Recognition and measurement
Basic EPS is calculated as net profit attributable to members of the Company, 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 that may be converted into ordinary shares in the Company.
B6. Income taxes
Income tax recognised in profit and loss
Current:
Current year
Adjustment for prior years
Deferred:
Temporary differences
Adjustment for prior years
Total tax expense
The prima facie income tax on pre-tax accounting profit from operations reconciles to:
Accounting profit before income tax
Income tax expense calculated at 28% (2022: 28%)
Difference in income tax rates: Australia 30% (2022: 30%), USA 25% (2022: 25%), and China 25%
(2022: 25%)
Non-deductible expenses and non-assessable income
Prior period adjustment to tax expense
Unutilised foreign tax credits
Deferred tax asset not recognised
Total tax expense
Income tax recognised directly in equity
Current tax
Deferred tax
Tax expense/(benefit) in equity
2023
$’000
2022
$’000
88,947
(7,999)
(7,035)
4,108
78,021
222,862
62,401
2,780
2,687
(3,891)
3,559
10,485
78,021
–
41
41
45,482
(6,908)
19,872
8,200
66,646
181,387
50,788
923
2,377
1,292
1,325
9,941
66,646
(3,759)
(702)
(4,461)
95
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group performance
for the year ended 30 June 2023
B6. Income taxes (continued)
Deferred tax balances
2023
Gross deferred tax assets
Patents
Provisions and accrued expenses
Tax losses
Property, plant and equipment
Employee share scheme
Hedging instruments
Other
Net deferred tax
Charge to profit or loss
Charge to other comprehensive income
2022
Gross deferred tax assets
Patents
Provisions and accrued expenses
Tax losses
Property, plant and equipment
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
96
Opening
balance
$’000
Charge to
comprehensive
income
$’000
Charge to
equity
$’000
Closing
balance
$’000
111
22,235
193
29
1,112
–
2,051
25,731
(34)
316
(71)
1,970
1,964
–
(1,601)
2,544
2,927
(383)
2,544
–
–
–
–
–
342
–
342
77
22,551
122
1,999
3,076
342
450
28,617
Opening
balance
$’000
Charge to
comprehensive
income
$’000
Charge to
equity
$’000
Closing
balance
$’000
515
49,809
254
–
323
3,131
54,032
(931)
53,101
(404)
(27,574)
(61)
29
706
(1,080)
(28,384)
931
(27,453)
(28,072)
619
(27,453)
–
–
–
–
83
–
83
–
83
111
22,235
193
29
1,112
2,051
25,731
–
25,731
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter B6. Income taxes (continued)
Tax losses
The Group companies have the following estimated gross tax losses at balance date not recognised:
USA
New Zealand
2023
$’000
100,066
207,357
307,423
2022
$’000
85,918
190,624
276,542
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 the Group on an accrual basis.
The ability to use the imputation and franking credits is dependent upon the ability of the Group to declare dividends. The franking credit
account balance is stated in AUD.
Imputation and franking credits available within the Group, and ultimately available to the shareholders of the Company as at year end:
Imputation credits
Franking credits
2023
$’000
49,310
517,273
2022
$’000
49,939
457,715
97
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group performance
for the year ended 30 June 2023
B6. 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.
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 assets and liabilities 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.
Key estimates and judgements
Recoverability of deferred tax assets
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 Consolidated statement of financial position and the amount of other tax losses and temporary differences not yet
recognised.
Pillar Two model rules
Internationally, jurisdictions are at various stages of implementing the Pillar Two model rules published by the Organisation for
Economic Co-operation and Development including tax law that implements qualified domestic minimum top-up taxes described in
those rules (Pillar Two legislation). Due to the complexities of the Pillar Two model rules and the uncertainties surrounding the
impact of Pillar Two legislation on deferred taxes, no deferred tax assets or liabilities have been recognised under the Pillar Two
model rules.
98
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Operating assets and liabilities
for the year ended 30 June 2023
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 expected credit losses
Goods and services tax
Other receivables
2023
$’000
57,731
(45)
10,699
10,831
79,216
2022
$’000
67,411
(125)
9,711
6,513
83,510
The Group’s exposure to credit risks and impairment losses related to trade and other receivables are disclosed in Note D1: 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
Total inventories at the lower of cost and net realisable value
2023
$’000
26,727
161,706
5,007
193,440
2022
$’000
17,974
119,505
2,565
140,044
At year end $10,964,000 (2022: $12,227,000) was recognised as an expense in cost of sales for inventories written down or written off,
with $3,458,000 (2022: $4,838,000) relating to Mataura Valley Milk (MVM) inventory.
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
Estimation of net realisable value
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 may impact these estimations in future periods.
99
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Operating assets and liabilities
for the year ended 30 June 2023
C3. Trade and other payables
Current
Trade payables
Rebates and promotional allowances
Accrued charges
Employee entitlements
Customer contract liabilities
Non-current
Employee entitlements
2023
$’000
2022
$’000
54,719
104,707
119,698
26,601
7,487
313,212
83,107
99,771
164,797
28,407
3,171
379,253
423
416
Recognition and measurement
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.
Customer contract liabilities are payments received in advance from customers.
Employee entitlements
Provision is made for benefits accruing to employees in respect of wages and salaries, bonuses, 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 at 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.
100
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Office &
computer
$’000
Furniture &
fittings
$’000
Leasehold
improvements
$’000
Plant &
equipment
$’000
Total
$’000
2,360
398
(31)
67
–
(1,290)
(1,012)
–
48,960
51,427
(2,467)
48,960
19
1,734
5,071
(3,337)
1,734
733
34
–
(177)
(5)
585
1,331
(746)
585
3,541
174,967
240,547
3
–
16,026
16,528
–
(31)
(1,017)
(8,111)
(11,607)
(29)
(206)
(221)
2,498
182,676
245,216
6,043
(3,545)
2,498
207,287
279,922
(24,611)
(34,706)
182,676
245,216
Buildings
$’000
Office &
computer
$’000
Furniture &
fittings
$’000
Leasehold
improvements
$’000
Plant &
equipment
$’000
C4. Property, plant and equipment
2023
Carrying amount 1 July 2022
Land
$’000
8,763
Buildings
$’000
50,183
Additions
Disposals
Depreciation
Net foreign currency exchange
differences
Carrying amount 30 June 2023
Cost
Accumulated depreciation
Carrying amount 30 June 2023
2022
Carrying amount 1 July 2021
Acquisition of subsidiary
Additions
Depreciation
Net foreign currency exchange
differences
Carrying amount 30 June 2022
Cost
Accumulated depreciation
Carrying amount 30 June 2022
–
–
–
–
8,763
8,763
–
8,763
Land
$’000
–
8,763
–
–
–
8,763
8,763
–
8,763
–
51,162
197
(1,176)
–
50,183
51,359
(1,176)
50,183
936
2,247
327
(1,202)
52
2,360
4,698
(2,338)
2,360
814
–
51
4,010
–
394
(176)
(1,028)
11,402
166,741
3,970
(7,505)
Total
$’000
17,162
228,913
4,939
(11,087)
44
733
1,281
(548)
733
165
3,541
6,023
(2,482)
3,541
359
620
174,967
240,547
191,313
263,437
(16,346)
(22,890)
174,967
240,547
101
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Operating assets and liabilities
for the year ended 30 June 2023
C4. Property, plant and equipment (continued)
Recognition and measurement
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. Land is not depreciated. The following estimated useful lives are used in the
calculation of depreciation:
Buildings
20-90 years
Office and computer equipment
2-25 years
Furniture and fittings
Leasehold improvements
Plant and equipment
5-10 years
2-10 years
2-50 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.
Key estimates and judgements
Recoverability and determination of useful lives
If indicators of impairment are present, property, plant and equipment will be subject to impairment testing, which involves
estimates and judgements made with respect to assessing the recoverability of the carrying amount of property, plant and
equipment. Judgement is also involved in determining the useful lives of property, plant and equipment which are reviewed and
adjusted, where required, annually.
102
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
C5. Investment property
The Kyvalley Dairy Group (Kyvalley) is the Group’s long-term fresh milk supplier in Victoria. Kyvalley continues to operate the facility under
a long-term operating lease and a long-term supply agreement. Under the agreement the Group has commenced an expansion and
upgrade of the facility, to be subsidised by increased rent.
The purchase and upgrade of the Kyabram site is a strategic investment to ensure quality of products and processing capacity. The related
long-term product supply agreement entered into alongside the investment provides ongoing supply from Kyvalley’s contracted A1 protein
free milk pool.
Land
$’000
498
–
–
(15)
483
483
–
483
Land
$’000
293
–
192
–
13
498
498
–
498
2023
Carrying amount 1 July 2022
Additions
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2023
Cost
Accumulated depreciation
Carrying amount 30 June 2023
2022
Carrying amount 1 July 2021
Additions
Transfers
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2022
Cost
Accumulated depreciation
Carrying amount 30 June 2022
Profit arising from investment property
Rental income
Buildings
$’000
Plant &
equipment
$’000
Work in
progress
$’000
4,568
–
(285)
46
4,329
5,291
(962)
4,329
9,177
–
(792)
(220)
8,165
11,468
(3,303)
8,165
Buildings
$’000
5,166
Plant &
equipment
$’000
10,291
–
(192)
(528)
122
4,568
5,246
(678)
4,568
553
–
(1,912)
245
9,177
11,688
(2,511)
9,177
1,420
3,535
–
(5)
4,950
4,950
–
4,950
Work in
progress
$’000
864
518
–
–
38
1,420
1,420
–
1,420
2023
$’000
1,152
Total
$’000
15,663
3,535
(1,077)
(194)
17,927
22,192
(4,265)
17,927
Total
$’000
16,614
1,071
–
(2,440)
418
15,663
18,852
(3,189)
15,663
2022
$’000
1,088
103
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Operating assets and liabilities
for the year ended 30 June 2023
C5. Investment property (continued)
Future minimum rentals receivable under operating lease
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Total undiscounted lease payments to be received
2023
$’000
1,144
4,578
16,975
22,697
2022
$’000
1,132
4,529
16,797
22,458
Measurement of fair value
The investment property was purchased in September 2020. The Group has not engaged an independent valuer for the current period. At
reporting date, the Directors have determined a fair value of $18,600,000 based on a capitalisation of rent valuation approach, adopting a
capitalisation rate of 8%. Directors consider that this calculation represents a reasonable approximation of fair value as at 30 June 2023.
Recognition and measurement
Investment property
Investment property is held primarily to earn rental income and for capital appreciation. It is measured initially at cost, including transaction
costs such as transfer taxes and professional fees for legal services. Subsequent to initial recognition, the Group elected to measure
investment property using the cost model (carried at historical cost less accumulated depreciation and impairment).
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. Land is not depreciated. The following estimated useful lives are used in the
calculation of depreciation:
Buildings
4-40 years
Plant and equipment 3-25 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.
Work in progress expenditure is capitalised only when the Group can demonstrate 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.
Depreciation commences when the asset is available for use.
Rental income
Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term, and is
included in other revenue in the Consolidated statement of comprehensive income.
Key estimates and judgements
Recoverability and determination of useful lives
If indicators of impairment are present, investment property will be subject to impairment testing, which involves estimates and
judgements made with respect to assessing the recoverability of the carrying amount of investment property. Judgement is also
involved in determining the useful lives of investment property which are reviewed and adjusted, where required, annually.
104
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter C6. Intangible assets
2023
Carrying amount 1 July 2022
Additions
Amortisation
Net foreign currency exchange differences
Carrying amount 30 June 2023
Cost
Accumulated amortisation and impairment
Carrying amount 30 June 2023
2022
Carrying amount 1 July 2021
Acquisition of subsidiary
Additions
Amortisation
Net foreign currency exchange differences
Carrying amount 30 June 2022
Cost
Accumulated amortisation and impairment
Carrying amount 30 June 2022
Patents
$’000
Trade marks
$’000
Software
$’000
883
68
(34)
–
917
1,595
(678)
917
3,905
90
–
–
3,995
3,995
–
3,995
2,066
180
(1,073)
(13)
1,160
5,147
(3,987)
1,160
Patents
$’000
Trade marks
$’000
Software
$’000
806
–
118
(40)
(1)
883
1,527
(644)
883
3,812
–
93
–
–
3,905
3,905
–
3,905
2,347
943
18
(1,237)
(5)
2,066
4,954
(2,888)
2,066
Goodwill
$’000
102,468
–
–
(121)
102,347
102,347
–
102,347
Goodwill
$’000
8,172
94,078
–
–
218
102,468
102,468
–
102,468
Total
$’000
109,322
338
(1,107)
(134)
108,419
113,084
(4,665)
108,419
Total
$’000
15,137
95,021
229
(1,277)
212
109,322
112,854
(3,532)
109,322
Trade marks are allocated to the following cash-generating units (CGUs) for the purpose of impairment testing: Australia and New Zealand
$318,000 (2022: $304,000); China and Other Asia $3,503,000 (2022: $3,436,000); USA $174,000 (2022: $165,000).
During the year the total value of research and development costs expensed was $6,307,000 (2022: $4,389,000).
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.
Trade marks
Trade marks 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.
The costs of configuring or customising a supplier’s application software in a Cloud Computing Software-as-a-service agreement are
expensed as incurred.
Goodwill
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.
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.
105
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Operating assets and liabilities
for the year ended 30 June 2023
C6. Intangible assets (continued)
Impairment testing for cash-generating units (CGUs) containing goodwill
Goodwill allocation
For the purposes of impairment testing, goodwill is allocated to the Group’s CGUs which represent the lowest level within the Group at
which goodwill is monitored for internal management purposes as follows:
Australia and New Zealand
China
2023
$’000
50,617
51,730
2022
$’000
50,738
51,730
102,347
102,468
Impairment testing of non-financial assets
Assets that have an indefinite useful life, such as goodwill and trade marks, 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).
Impairment losses are recognised in the Consolidated 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.
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 and the allocation
of goodwill to the cash-generating units.
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.
106
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter C6. Intangible assets (continued)
Annual impairment testing as at 30 June 2023
The recoverable amount of CGUs containing goodwill and trade marks 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 four-year forward plans supplied
by management.
As at 30 June 2023, 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.
Key assumptions
Gross margins
Gross margins are based on budgeted margins for FY24, 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 (post-tax): 9.3% (2022: 8.9%)
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.
Revenue growth
Revenue projections have been constructed with reference to the FY24 budget and four-year forward plans and adjusted for recent
performance trends across the regions (where necessary).
Terminal growth rate
A terminal growth rate of 2.0% (2022: 2.0%) has been used for future cash flow growth beyond the 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.
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)
107
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Operating assets and liabilities
for the year ended 30 June 2023
C7. Other financial assets
Current
Foreign currency forward contracts
Non-current
Foreign currency forward contracts
Listed investment at fair value
2023
$’000
1,536
113
71,965
72,078
2022
$’000
–
–
135,260
135,260
The listed investment is a 19.8% holding in shares in Synlait Milk Limited (Synlait). Synlait is a dairy processing company (listed on NZX and
ASX) with which the Group has an ongoing Nutritional Powders Manufacturing and Supply Agreement. No dividends were received from
this investment during the year (2022: $nil).
Shareholding in Synlait Milk Limited
Movements in the period
Balance 30 June 2022
Balance 30 June 2023
Fair value loss in period
Shares
‘000
43,353
43,353
Cost
$’000
288,781
288,781
Share price at
report date
$
3.12
1.66
Market
value
$’000
135,260
71,965
(63,295)
Mark to
market
$’000
(153,521)
(216,816)
A fair value loss of $63,295,000 (2022: $22,543,000) was recognised in other comprehensive income 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.
Foreign currency forward contracts are stated at fair value, calculated by reference to current forward exchange rates for contracts with
similar profiles, adjusted to reflect the credit risk of the various counterparties.
108
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter C8. Other financial liabilities
Current
Foreign currency forward contracts
Non-current
Foreign currency forward contracts
2023
$’000
2022
$’000
3,501
16,999
235
872
Recognition and measurement
Foreign currency forward contracts are stated at fair value, calculated by reference to current forward exchange rates for contracts with
similar profiles, adjusted to reflect the credit risk of the various counterparties.
Key estimates and judgements
Fair value measurement of foreign currency forward contracts
The fair value of foreign currency forward contracts is measured using valuation techniques. The inputs to these models are taken
from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values.
Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these
factors could affect the reported fair value of these financial instruments.
109
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D. Financial risk and capital management
This section outlines how the Group manages exposure to financial risk and capital structure, and provides details of its balance sheet
liquidity and access to financing facilities.
D1. Financial risk management
Financial risk management objectives
Exposure to credit risk, market risk (including currency risk, commodity price risk, interest rate 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 centralised treasury department (Group Treasury) provides treasury services to the business, co-ordinates access to domestic
and international financial markets, and monitors and manages liquidity. The Group’s corporate function monitors 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 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.
Maximum exposures to credit risk at balance date:
Cash and term deposits (counterparty risk)
Trade receivables (customer credit risk)
Foreign currency forward contracts (counterparty risk)
2023
$’000
802,234
57,731
1,649
861,614
2022
$’000
887,308
67,411
–
954,719
Counterparty 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, ANZ Bank, Westpac, ASB Bank, Bank of New Zealand, HSBC Bank, Bank of China, and JP Morgan Chase
Bank.
Counterparties to derivative financial instruments are large banks with which the Group has existing banking relationships, with acceptable
credit ratings determined by recognised credit agencies.
The Group does not have any other concentrations of counterparty credit risk.
110
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
D1. Financial risk management (continued)
Credit risk management (continued)
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
on credit are to major retailers and other significant customers with established creditworthiness 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 2023, 28% of sales with credit terms were to three customers
(2022: 23% of sales to three customers). There is no history of default for these customers.
The allowance for expected credit losses is recognised based on an assessment of lifetime expected credit losses.
Ageing of trade receivables at 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
Allowance for expected credit losses
2023
$’000
54,827
2,460
–
412
32
57,731
(45)
57,686
The average credit period on sales is 14 days (2022: 15 days). No interest is charged on trade receivables outstanding.
Movement in impairment allowance for expected credit loss
Balance at beginning of year
Amount (reversed)/charged to the Consolidated statement of comprehensive income
Provisions reversed and net foreign exchange differences
Balance at end of year
2023
$’000
125
(78)
(2)
45
2022
$’000
48,009
16,612
2,339
449
2
67,411
(125)
67,286
2022
$’000
107
30
(12)
125
Market risk management
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, and to interest rate
risk. 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.
111
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D1. Financial risk management (continued)
Interest risk management
The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. Borrowings at fixed rates expose the Group to fair value interest rate risk. These risks have not been hedged given the
limited exposure.
Bank borrowings are primarily from New Zealand banks, in New Zealand dollars, at New Zealand market rates.
Fixed and variable rate exposure
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
2023
$’000
2022
$’000
450,000
(52,038)
397,962
176,170
(30,000)
146,170
500,000
(63,206)
436,794
55,663
(30,000)
25,663
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and does not employ
derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. A change in interest rates at the
reporting date would not affect profit or loss for the Group.
Cash flow sensitivity analysis for variable rate instruments
A reasonably possible change of 100 basis points in interest rate at the reporting date would have increased or decreased profit or loss by
$1,462,000 (2022: $257,000). This analysis assumes all other variables remain the same.
Foreign currency risk management
The Group’s exposure to foreign currency risk arises principally from its operations in Australia, the USA, and China; and the resultant
movements in the currencies of those countries against the NZ dollar.
The Group hedges a portion of this risk using derivative financial instruments such as foreign currency forward contracts, designated as
cash flow hedges, to hedge certain highly probable foreign currency transactions. These contracts are executed by Group Treasury in
accordance with the Group’s Treasury Risk Policy.
The Group may also transfer cash balances from time-to-time between currencies to reduce exposure or to match underlying liabilities.
112
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter D1. Financial risk management (continued)
Foreign currency risk management (continued)
Hedging currency risk
On entering into a hedging relationship, the Group formally designates and documents the hedge relationship and the risk management
objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item
or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the
exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly
effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they were
actually highly effective throughout the financial reporting periods for which they are designated.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges, which hedge exposure to variability in cash
flows of a highly probable forecasted transaction, are recognised directly in other comprehensive income and accumulated in the hedging
reserve. The ineffective portion is recognised in profit or loss within other expenses. Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised. At that point in time, any cumulative gain or loss on the hedging instrument
recognised in equity is kept in equity until the forecasted transaction occurs or until cash flows arising from the transaction are received.
The amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects
profit or loss. If the forecast transaction is no longer going to occur the item is transferred to profit or loss when hedging is discontinued.
The gross value to be received or paid and the weighted average contracted exchange rates for foreign currency forward contracts
outstanding at year end are as follows:
Carrying
amount
Carrying
amount
2023
$’000
2022
$’000
Notional amount
NZ dollars
Weighted average
exchange rate
Term
2023
$’000
2022
$’000
2023
$’000
2022
$’000
AUD
Buy NZD/sell AUD
(1,041)
(110)
One year or less
72,232
66,632
0.8999
0.9005
EUR
Buy AUD/sell EUR
(117)
–
One year or less
2,933
–
0.6287
–
USD
Buy NZD/sell USD
Buy NZD/sell USD
3,122
123
17,109
One year or less
872 More than one year
173,574
43,371
266,570
40,950
0.6222
0.6110
0.6640
0.6349
The carrying amount of foreign currency forward contracts is recognised in Other financial assets (refer to Note C7) and Other financial
liabilities (refer to Note C8).
The foreign currency forward contracts are considered to be highly effective hedges. There was no significant cash flow hedge
ineffectiveness in the current year.
Expressed in NZ dollars, the table below indicates exposure and sensitivity to movements in exchange rates on the pre-tax equity of the
Group based on closing exchange rates as at 30 June 2023, applied to the Group’s foreign currency forward contracts at 30 June 2023.
Exchange rates and foreign currency forward contracts will fluctuate over the course of normal operations.
2023
Movement on exchange rate
US Dollar
AU Dollar
Euro
Impact on pre-tax equity gain or (loss)
$’000
+10%
(24,011)
(7,777)
305
$’000
–10%
18,933
6,358
(291)
113
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D1. Financial risk management (continued)
Foreign currency risk management (continued)
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 unhedged 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.
2023
Movement on exchange rate
AU Dollar
US Dollar
Chinese Yuan Renminbi
2022
Movement on exchange rate
AU Dollar
US Dollar
Chinese Yuan Renminbi
Net exposure on
reporting date
$’000
–
(1,631)
62,608
(131,333)
Net exposure on
reporting date
$’000
–
(2,169)
65,188
(142,135)
Impact on pre-tax profit or (loss)
$’000
+10%
(181)
6,956
(14,593)
$’000
–10%
148
(5,692)
11,939
Impact on pre-tax profit or (loss)
$’000
+10%
(241)
7,243
(15,793)
$’000
–10%
197
(5,926)
12,921
As the unhedged 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:
AU Dollar
US Dollar
Chinese Yuan Renminbi
Average rate
Reporting date spot rate
2023
0.9153
0.6168
4.2856
2022
0.9379
0.6813
4.3958
2023
0.9191
0.6079
4.4066
2022
0.9058
0.6248
4.1860
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 S&P/NZX 50 index over the same period.
As at 30 June 2023, the exposure to the listed investment at FVOCI was $71,965,000 (2022: $135,260,000). A 10% increase or decrease
in the share price of this listed investment would result in an increase or decrease of $7,197,000 (2022: $13,526,000) 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.
114
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter D1. Financial risk management (continued)
Liquidity risk management (continued)
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.
Loans and borrowings within the Group are specific to the operations of Mataura Valley Milk Limited (refer to Note D6). No other entities
within the Group have borrowings (2022: $nil).
Contractual maturities of financial liabilities
The contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting arrangements
are set out below. No interest is payable on trade and other payables.
2023
Non-derivative financial liabilities
Contractual cash flows
Carrying
amounts
$’000
Total
$’000
6 months
or less
$’000
6 to 12
months
$’000
1 to 2
years
$’000
2 to 5
years
$’000
More than
5 years
$’000
Secured bank loans
45,000
47,472
16,278
1,025
30,169
–
37,038
19,491
42,021
21,867
–
–
–
42,021
2,410
2,421
4,442
8,526
4,068
279,124
279,124
279,124
–
–
217,136
85,945
104,893
26,298
(213,400)
(83,789)
(103,548)
(26,063)
384,389
394,220
299,968
4,791
34,846
50,547
4,068
Unsecured loan from MVM’s non-controlling
shareholder
Lease liabilities
Trade and other payables - excluding employee
entitlements and customer contract liabilities
Derivative financial liabilities
FX hedging contracts:
Carrying amount at fair value
3,736
Outflow
Inflow
2022
Unsecured loan from MVM’s non-controlling
shareholder
Lease liabilities
Trade and other payables - excluding employee
entitlements and customer contract liabilities
Derivative financial liabilities
FX hedging contracts:
Non-derivative financial liabilities
Secured bank loans
57,000
59,377
27,662
538
1,088
30,089
–
50,000
17,352
55,834
19,249
–
13,794
–
–
42,040
2,075
1,603
2,578
7,116
5,877
347,675
347,675
347,675
–
–
Carrying amount at fair value
17,871
Outflow
Inflow
392,023
159,206
190,996
41,821
(374,152)
(148,752)
(184,450)
(40,950)
489,898
500,006
387,866
22,481
4,537
37,205
47,917
115
–
–
–
–
–
–
–
–
–
–
–
–
–
–
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D1. Financial risk management (continued)
Change in liabilities arising from financing activities
Secured bank loans
Unsecured loan from MVM’s non-controlling shareholder
Lease liabilities
2022
$’000
57,000
50,000
17,352
124,352
Cash flow
$’000
Non-cash
$’000
(12,000)
(13,794)
(4,218)
(30,012)
–
832
6,356
7,188
2023
$’000
45,000
37,038
19,490
101,528
Carrying amounts versus fair value
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Consolidated statement of financial
position, are as follows:
Cash and term deposits
Trade and other receivables
Foreign currency forward contract assets
Listed investment
Secured bank loans
Unsecured loan from MVM’s non-controlling shareholder
Trade and other payables - excluding employee
entitlements and customer contract liabilities
Foreign currency forward contract liabilities
Hierarchy
level
2
1
2
2
2
2023
2022
Carrying
amount
$’000
Fair Value
$’000
802,234
802,234
79,216
1,649
71,965
(45,000)
(37,038)
79,216
1,649
71,965
(42,924)
(30,197)
Carrying
amount
$’000
887,308
83,510
–
Fair Value
$’000
887,308
83,510
–
135,260
135,260
(57,000)
(50,000)
(54,861)
(45,113)
(279,124)
(279,124)
(347,675)
(347,675)
(3,736)
(3,736)
(17,871)
(17,871)
590,166
599,083
633,532
640,558
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).
Carrying amount (equalling fair value) is applied consistently in the current and prior year to assets and liabilities not recognised in the
Consolidated statement of financial position at fair value.
Estimation of fair value
The following methods and assumptions are used in estimating the fair values of financial instruments:
– Listed investment - closing share price on NZX.
– Foreign currency forward contracts - calculated by reference to current forward exchange rates for contracts with similar maturity
profiles, adjusted to reflect the credit risk of the various counterparties.
– Loans and borrowings - present value of future principal and interest cash flow, discounted at the market rate of interest at the
reporting date.
– Cash and term deposits, trade and other receivables and payables - carrying amount approximates fair value.
116
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
D2. 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, other
than loans and borrowings specific to Mataura Valley Milk Limited (refer to Note D6).
The Group’s capital structure may be modified by payment of dividends to shareholders, returning capital to shareholders, or issuing new
shares. The Board continuously assesses its capital position in order to deliver the optimum structure to drive shareholder returns in line
with the Company’s strategy and capital allocation framework.
The Board regularly assesses the Group’s balance sheet position when considering how to deliver the optimum structure to enhance
shareholder value in line with the Company’s strategy and capital allocation framework. In accordance with the Company’s Capital
Allocation Framework, the Group has decided to prioritise investment in growth opportunities (focused on Supply Chain transformation)
and balance sheet strength, ahead of returning further capital to shareholders as at 30 June 2023, but will continue to review this on a
regular basis.
During the year, the Group undertook a capital return to shareholders through an on-market share buyback of $149,057,000 (2022: $nil).
The buyback commenced in November 2022 and concluded in March 2023. Shares bought back were cancelled on acquisition. (Refer to
Note D7).
D3. Cash and term deposits
Cash at banks and on hand
Short-term deposits
Cash and short-term deposits
Other current term deposits
Cash and term deposits
Expressed in the relevant currency, cash at banks and on hand includes:
AU dollars
US dollars
Chinese Yuan Renminbi
2023
$’000
176,064
176,170
352,234
450,000
802,234
2023
’000
27,789
40,154
341,872
2022
$’000
331,646
105,662
437,308
450,000
887,308
2022
’000
84,460
54,709
229,639
Bank balances and cash comprise cash held by the Group. Cash and short-term deposits earn interest at floating rates based on daily bank
deposit rates. The carrying value of cash assets and term deposits approximates their fair value.
Other current term deposits comprise term deposits with a maturity greater than three months and less than twelve months, having an
average maturity of eight months and a weighted average interest rate of 5.57% per annum.
Term deposits are presented as cash equivalents in the Consolidated statement of cash flows if they have a maturity of three months or
less and are readily convertible to known amounts of cash with no significant risk of changes in value.
For the purposes of the Consolidated statement of cash flows, cash and cash equivalents comprise the following:
Cash at banks and on hand
Short-term deposits
Cash and short-term deposits
2023
$’000
176,064
176,170
352,234
2022
$’000
331,646
105,662
437,308
117
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
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
Share-based payments
Net foreign exchange gain
Changes in working capital:
Trade and other receivables
Prepayments
Inventories
Trade and other payables
Tax balances
Net cash inflow from operating activities
2023
$’000
144,841
18,197
17,132
(1,917)
4,294
10,912
(53,396)
(71,633)
42,853
111,283
2022
$’000
114,741
18,929
11,701
(8,787)
(3,562)
(20,852)
(19,679)
69,504
41,805
203,800
118
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter D5. Leases
Group as lessee
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.
Right-of-use assets
Carrying amounts of right-of-use assets recognised and movements during the period:
2023
Carrying amount 1 July 2022
Additions
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2023
Cost
Accumulated depreciation
Carrying amount 30 June 2023
2022
Carrying amount 1 July 2021
Acquisition of subsidiary
Additions
Depreciation
Net foreign currency exchange differences
Carrying amount 30 June 2022
Cost
Accumulated depreciation
Carrying amount 30 June 2022
Leased
property
$’000
Office &
computer
$’000
Plant &
equipment
$’000
15,334
5,228
(3,890)
(201)
16,471
28,789
(12,318)
16,471
102
–
(46)
–
56
189
(133)
56
594
708
(470)
(10)
822
1,978
(1,156)
822
Leased
property
$’000
Office &
computer
$’000
Plant &
equipment
$’000
15,039
88
3,308
(3,688)
587
15,334
23,684
(8,350)
15,334
101
17
24
(41)
1
102
188
(86)
102
162
537
289
(396)
2
594
1,297
(703)
594
Total
$’000
16,030
5,936
(4,406)
(211)
17,349
30,956
(13,607)
17,349
Total
$’000
15,302
642
3,621
(4,125)
590
16,030
25,169
(9,139)
16,030
119
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D5. Leases (continued)
Lease liabilities
Carrying amounts of lease liabilities and movements during the period:
Balance at beginning of the year
Acquisition of subsidiary
Additions
Accretion of interest
Payments
Net foreign currency exchange differences
Balance at end of the year
Current
Non-current
Amounts recognised in profit or loss
Depreciation expense - right-of-use assets
Interest expense - lease liabilities
Expenses relating to short-term leases (included in administrative and other expenses)
Expenses relating to low-value assets (included in administrative and other expenses)
Total amount recognised in profit or loss
Cash flows for leases
Total cash outflows:
Lease interest
Payment of lease principal
Non-cash additions to right-of-use assets and lease liabilities
2023
$’000
17,352
–
5,936
640
(4,218)
(220)
19,490
4,181
15,309
19,490
2023
$’000
4,406
640
978
33
6,057
2023
$’000
640
3,578
4,218
5,936
2022
$’000
16,498
642
3,621
592
(4,681)
680
17,352
3,128
14,224
17,352
2022
$’000
4,125
592
461
5
5,183
2022
$’000
592
4,089
4,681
3,621
120
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter D5. Leases (continued)
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.
Group as lessor
Refer to Note C5: Investment property
121
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D6. Loans and borrowings
Current
Secured:
Bank loans
Unsecured:
Loan from MVM’s non-controlling shareholder
Non-current
Secured:
Bank loan
Unsecured:
Loan from MVM’s non-controlling shareholder
2023
$’000
2022
$’000
15,000
27,000
–
15,000
13,794
40,794
30,000
30,000
37,038
67,038
36,206
66,206
All of the loans and borrowings are specific to Mataura Valley Milk Limited (MVM) and are interest bearing.
The bank loans are secured against MVM’s property at Pease Street, Gore, New Zealand, and are subject to compliance with financial
covenants requiring the maintenance of specified financial ratios, related solely to MVM. All borrowing covenant ratios and limits have
been complied with as at 30 June 2023.
The non-current bank loan matures in July 2024. The interest rate applicable as at 30 June 2023 was 6.85%.
The average interest rate applicable at 30 June 2023 for the current bank loans was 6.37%.
Finance facilities available to MVM:
– Total bank debt facilities of $75 million, of which $45 million was drawn as at 30 June 2023.
– A performance guarantee facility of $10 million, fully drawn as at 30 June 2023.
The unsecured subordinated loan is provided by MVM’s non-controlling shareholder. The non-current loan has an initial term through to
FY27, to be repaid thereafter at a time to be agreed by the shareholder lenders. The current loan was repaid during the year. The interest
rate applicable as at 30 June 2023 was 2.56%.
Other Group entities have access to bank guarantee facilities totalling $1,783,000 of which $1,246,000 was drawn as at 30 June 2023.
Recognition and measurement
Interest bearing loans and borrowings are initially recognised at fair value at transaction date, less directly attributable transaction costs,
and subsequently measured at amortised cost using the effective interest rate method.
122
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter
D7. Share capital
Movements in contributed equity:
Fully paid ordinary shares:
Balance at beginning of year
Movements in the period:
Vesting of time-based rights
Gift shares
Share match programme
Vesting of matching share rights
Share issue costs
Share buyback
Balance at end of year
2023
2022
Number
of shares
Share capital
$’000
Number
of shares
Share capital
$’000
743,656,528
149,157
743,410,790
149,121
–
–
–
–
–
(21,680,314)
(21,680,314)
721,976,214
–
–
–
–
–
(149,057)
(149,057)
201,636
29,778
6,038
8,286
–
–
245,738
–
–
45
–
(9)
–
36
100
743,656,528
149,157
Share buyback
When the Company re-acquires its own ordinary shares as the result of a share buyback, those shares are deducted from equity and the
associated shares are cancelled. No gain or loss is recognised in profit or loss and the consideration paid including any directly attributable
incremental costs is recognised directly in equity. On 29 August 2022, the Company announced an on-market buyback of shares with an
aggregate value of up to $150 million, which commenced on 7 November 2022. From 7 November 2022 to 17 March 2023 the Company
purchased and cancelled 21,680,314 ordinary shares at a total cost of $149,057,000 including brokerage costs at an average price of $6.87
excluding brokerage costs.
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.
123
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Financial risk and capital management
for the year ended 30 June 2023
D8. 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 treasury shares
subsequently vest to employees under employee share plans, the carrying value of the vested shares is transferred to the employee equity
settled payments reserve.
Movements in treasury shares reserve:
Balance at beginning of year
Movements in the period:
On-market purchases
Vesting of matching share rights
Vesting of time-based rights
Gift shares
Balance at end of year
2023
2022
Number of
shares
$’000
Number of
shares
$’000
2,372,842
15,798
362,823
3,773
–
(14,011)
(261,505)
(54,378)
(329,894)
2,042,948
–
(93)
(1,741)
(362)
(2,196)
13,602
2,200,000
–
(178,526)
(11,455)
2,010,019
2,372,842
13,306
–
(1,189)
(92)
12,025
15,798
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash
flow hedges pending subsequent recognition in profit or loss when the associated hedged transactions are recognised in profit or loss.
Movements on these reserve accounts are set out in the Consolidated statement of changes in equity.
124
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter D9. Capital expenditure commitments
Contracted but not yet provided for and payable
Property, plant and equipment
D10. Contingent liabilities
2023
$’000
2022
$’000
21,277
5,575
On 6 October 2021, the Company announced that group proceedings had been filed in the Supreme Court of Victoria by Slater & Gordon
Lawyers, which named the Company as the defendant. The proceeding relates to the period from 19 August 2020 to 9 May 2021
(Relevant Period) and makes allegations that the Company engaged in misleading and deceptive conduct and breached its disclosure
obligations by failing to disclose certain information to the market. The claim filed by Slater & Gordon Lawyers is said to be brought on
behalf of shareholders who acquired an interest in fully paid ordinary shares in the Company on the Australian Securities Exchange (ASX)
or NZX Main Board (NZSX) between 19 August 2020 and 9 May 2021 (inclusive).
On 24 November 2021, the Company was served with a representative proceeding filed in the Supreme Court of Victoria by Shine
Lawyers, which names the Company as the defendant. The proceeding makes allegations which are broadly similar to those advanced
by the class action proceeding filed by Slater & Gordon Lawyers on 5 October 2021. The claim filed by Shine Lawyers is said to be
brought on behalf of group members who acquired an interest in ordinary shares in the Company on the ASX or the NZSX:
(1) prior to 19 August 2020, and retained those shares until a date after 28 September 2020; or (2) during the Relevant Period.
On 14 June 2022, the Supreme Court of Victoria approved the proposal to consolidate the proceedings filed by Slater & Gordon Lawyers
and Shine Lawyers (the Australian Proceedings). The consolidated claim is brought on behalf of shareholders who acquired an interest in
fully paid ordinary shares in the Company on the ASX or the NZSX: (1) during the Relevant Period; and (2) prior to 19 August 2020 and
retained those shares until a date after 28 September 2020. The claim makes allegations under both Australian and New Zealand law.
On 28 November 2022, the Supreme Court of Victoria ruled that it has jurisdiction to hear and determine the claims brought under
New Zealand law.
On 18 May 2022, the Company announced that a representative proceeding had been filed in the High Court of New Zealand which
names the Company as the defendant (the New Zealand Proceeding). The New Zealand Proceeding, filed by Thorn Law and funded by
CHC Investment Fund III Pty Limited relates to the same period (19 August 2020 to 9 May 2021) and makes allegations under New Zealand
law only which are substantially the same as those advanced in the Australian Proceedings. The claim is commenced on behalf of group
members who acquired an interest in ordinary shares in the Company on the ASX or the NZSX: (1) during the Relevant Period; and (2)
prior to the Relevant Period and continued to hold some or all of those shares for part or all of the Relevant Period.
The Company filed an interlocutory application for a stay of the New Zealand Proceeding under the Trans-Tasman Proceedings Act 2010
(NZ) on 23 June 2022. On 23 January 2023, the Auckland High Court granted the Company’s application for a stay of the New Zealand
Proceeding, pending judgment on liability or a final settlement of the Australia Proceeding, whichever occurs first.
The Company considers that it has at all times complied with its disclosure obligations, denies any liability and will vigorously defend the
proceedings. The Company filed its defence in the Australian Proceedings on 8 November 2022. The Company has not filed a defence in
the New Zealand Proceeding, which is stayed.
As at 30 June 2023, a date for the next case management conference in the Australian Proceedings has not been set by the Court.
The claims of group members have not yet been and are not required to be quantified. Based on the current status of the Australian
Proceedings and the New Zealand Proceedings, it is not practicable to provide: (a) an estimate of the financial effect; (b) an indication
of the uncertainties relating to the amount or timing of any outflow; or (c) the possibility of any reimbursement.
125
ANNUAL REPORT 2023
CEO’s year in review
Financial statements
Group structure
for the year ended 30 June 2023
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 2023 are as follows:
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
Mataura Valley Milk 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 Ltd
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
Parties to Deed of
Cross Guarantee
(note E3)*
Principal place
of business
Proportion of ownership interest
2023
2022
✓
–
–
✓ #
–
–
✓
–
✓
✓
✓
✓
–
–
–
–
–
–
–
New Zealand
–
–
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%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
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 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.
There were no 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.
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
All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Group are
eliminated in preparing the consolidated financial statements.
126
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter E2. Business combinations
During the year ended 30 June 2023
There were no business combinations during the year ended 30 June 2023.
During the year ended 30 June 2022
Acquisition of subsidiary: Mataura Valley Milk Limited
On 30 July 2021, The a2 Milk Company Limited (a2MC) acquired a 75% controlling interest in Mataura Valley Milk Limited (MVM), a dairy
nutrition business, located in Southland, New Zealand.
Fair value of net identifiable assets acquired, goodwill and total cash outflow
Net identifiable assets acquired
Less: non-controlling interests
a2MC’s share of net identifiable assets acquired
Loan payable to a2MC in net assets acquired
Goodwill
Total cash outflow
$’000
90,312
(22,578)
67,734
106,694
174,428
94,078
268,506
Total goodwill of $94,078,000 was allocated to the following CGUs: Australia and New Zealand: $42,348,000; China $51,730,000. The
net outflow of cash on acquisition of $213,746,000 consisted of the total cash outflow of $268,506,000, less cash balances acquired of
$54,760,000.
Recognition and measurement
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for
non-controlling interests, over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Acquisition-related costs are expensed as incurred and included in profit or loss as administrative and other expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
127
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Group structure
for the year ended 30 June 2023
E3. 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 as listed in Note E1), after eliminating
all transactions between parties to the Deed of Cross Guarantee, at 30 June 2023 are set out as follows:
Consolidated statement of comprehensive income and retained earnings for the year ended 30 June 2023
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
2023
$’000
2022
$’000
1,400,813
1,273,571
(1,158,508)
(1,058,365)
30,874
273,179
(69,032)
204,147
6,929
211,076
8,140
223,346
(59,291)
164,055
(654)
163,401
1,212,969
1,048,914
(6,929)
654
1,417,116
1,212,969
128
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter E3. Deed of cross guarantee (continued)
Consolidated statement of financial position as at 30 June 2023
Assets
Current assets
Cash and short-term deposits
Trade and other receivables
Prepayments
Inventories
Other financial assets
Income tax receivable
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Investment property
Intangible assets
Other financial assets
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Other financial liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Trade and other payables
Lease liabilities
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity
2023
$’000
2022
$’000
713,042
192,998
40,009
164,112
1,291
–
797,296
153,906
49,229
95,678
–
12,648
1,111,452
1,108,757
23,251
10,967
17,927
13,723
606,522
20,892
693,282
15,802
12,460
15,663
14,441
565,047
18,424
641,837
1,804,734
1,750,594
286,230
2,141
6,524
35,220
330,115
421
235
10,396
11,052
341,167
338,987
832
12,553
–
352,372
416
12,517
872
13,805
366,177
1,463,567
1,384,417
100
1,417,116
46,351
149,157
1,212,969
22,291
1,463,567
1,384,417
129
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Other disclosures
for the year ended 30 June 2023
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
Share-based payments
2023
$’000
9,160
–
6,560
15,720
2022
$’000
6,802
1
6,358
13,161
Other than non-executive directors, key management personnel in FY23 include the following senior executives:
Managing Director and CEO
Chief Financial Officer (from 18 October 2022)
Interim Chief Financial Officer (to 17 October 2022)
Chief Executive, Greater China
Transactions with key management personnel and their related parties
During the year there were no related party transactions with key management personnel or their related parties (2022: $nil).
Loans to key management personnel and their related parties
No loans were outstanding or made to key management personnel and their related parties at any time during the 2023 and 2022
financial years.
130
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter F2. Share-based payments
Long-term incentives (LTI)
The LTI plan is designed to retain and motivate senior management to achieve the Group’s long-term strategic goals by providing rewards
that align the interests of management with shareholders.
During the period the Board authorised the issue of 2,472,270 performance rights to senior management under the LTI plan.
The performance rights vest subject to:
– Continuing employment; and
– Achieving the following performance hurdles over the performance periods:
Performance rights grants:
Performance period
EPS CAGR
50% vest
85% vest
100% vest
Revenue CAGR hurdles
FY22 plan
5,000 rights
FY23 plan
3 years to 30 June 2024
20%
2,467,270 rights
3 years to 30 June 2025
10%
6%
6%
8%
8%
10%
10%
Both the minimum EPS CAGR (compound annual growth in diluted earnings per share) and minimum Revenue CAGR (compound annual
growth in revenue) must be achieved for any vesting of performance rights. The minimum vesting proportion is 50%; thereafter, vesting is
on a straight-line basis.
EPS CAGR and Revenue CAGR are derived from the annual report of the Company for the relevant financial years and are subject to
adjustment to remove the impact of material items as the Board may determine in its absolute discretion to normalise results (up or down)
to more appropriately reflect underlying performance. Without limitation, adjustments may be made to exclude the impact of unusual or
one-off items, discontinued operations, acquisitions and disposals, and capital management.
No amount is payable upon vesting of the performance rights and conversion to shares. Each exercised right is an entitlement to one fully
paid ordinary share in the Company.
Fair value of performance rights
The fair value of services received in return for performance 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.
Fair value of performance rights granted during the period and assumptions
Grant date
Fair value at measurement date
Share price at grant date
Performance rights life
30 Sept 22
6 Dec 22
13 June 23
$6.12
$6.12
$6.77
$6.77
$5.63
$5.63
2.9 years
2.7 years
2.2 years
131
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Other disclosures
for the year ended 30 June 2023
F2. Share-based payments (continued)
Performance rights granted in previous years
In FY22 performance rights were issued in two tranches to accommodate the deferral of the LTI programme in FY21. They have differing
performance periods and performance hurdles as set out below.
The performance rights vest subject to:
– Continuing employment; and
– Achieving the following performance hurdles over the performance periods:
Performance rights grants:
Performance period
EPS CAGR
50% vest
85% vest
100% vest
Tranche 1 (FY21 plan)
Tranche 2 (FY22 plan)
2 years to 30 June 2023
3 years to 30 June 2024
20%
20%
7.5%
6%
10%
8%
12.5%
10%
Revenue CAGR hurdles
Both the minimum EPS CAGR (compound annual growth in diluted earnings per share) and minimum Revenue CAGR (compound annual
growth in normalised sales) must be achieved for any vesting of performance rights. The minimum vesting proportion is 50%; thereafter,
vesting is on a straight-line basis.
EPS CAGR and Revenue CAGR are derived from the annual report of the Company for the relevant financial years and are subject to
adjustment to remove the impact of material items as the Board may determine in its absolute discretion to normalise results (up or down)
to more appropriately reflect underlying performance. Without limitation, adjustments may be made to exclude the impact of unusual or
one-off items, discontinued operations, acquisitions and disposals, and capital management.
No amount is payable upon vesting of the performance rights and conversion to shares. Each exercised right is an entitlement to one fully
paid ordinary share in the Company.
The average fair value of the Tranche 1 and Tranche 2 awards at grant date was $7.18.
LTI outstanding as at 30 June 2023
Number
Grant Dates
Vesting Dates
Expiry Dates
Performance rights – FY22 grants Tranche 1 (FY21 plan)
Performance rights – FY22 grants Tranche 2 (FY22 plan)
Performance rights – FY23 grants
1,752,286
2,080,611
2,261,612
6,094,509
22-Oct-21
22-Oct-21
30-Sep-22
21-Aug-23
21-Aug-24
21-Aug-25
21-Aug-23
21-Aug-24
21-Aug-25
132
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter F2. Share-based payments (continued)
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
The weighted average remaining contractual life of performance rights is 1.2 years (2022: 1.5 years)
Time-based 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
Number
2023
Number
2022
4,690,064
(1,067,825)
881,060
(546,310)
2,472,270
4,355,314
–
–
6,094,509
4,690,064
Number
2023
Number
2022
261,505
–
–
(261,505)
–
685,336
(3,080)
–
(420,751)
261,505
Other employee equity schemes
In the period, employees not participating in the LTI plan were invited to participate in a gift offer scheme in which employees each
received Company shares to the value of approximately A$1,000.
Amounts recognised in the Consolidated statement of comprehensive income
During the year ended 30 June 2023, a $17,132,000 expense was recognised in the Consolidated statement of comprehensive income for
equity settled share-based payment awards (2022: $11,701,000).
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.
133
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Other disclosures
for the year ended 30 June 2023
F3. Auditor’s remuneration
The auditor of the Company is Ernst & Young Australia.
Amounts received or due and receivable by Ernst & Young for:
Fees to Ernst & Young (Australia):
Fees for auditing the statutory financial statements of the parent covering the Group and auditing
the statutory financial statements of any controlled entities
Fees for other assurance and agreed-upon-procedures services
Fees for other services:
Market research1
Total fees to Ernst & Young (Australia)
Fees to other overseas member firms of Ernst & Young:
Total fees to other overseas member firms of Ernst & Young for local statutory audits
2023
$’000
1,400
177
178
1,755
115
1,870
2022
$’000
1,586
118
240
1,944
109
2,053
1 The market research reports prepared are solely for the Group’s internal use and contents of these reports are not subject to Ernst & Young audit.
F4. Subsequent events
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 periods.
134
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter Company
disclosures
For the year ended 30 June 2023
Contents
1. Substantial product holders
2. Voting rights
3. Twenty largest fully paid equity security holders
4. Spread of security holders as at 1 August 2023 and number of holders
5. Directors’ relevant interests and share dealings
6. Credit rating status
7. NZX Waivers
8. Particulars of notices or statements given to or approved by the Board
9. Limitations on the acquisition of securities
10. On-market buyback
11. On-market purchases
12. Donations
13. Directors and officers
14. Employee remuneration range
15. Principal activities
16. Reconciliation of EBITDA to net profit after tax
1. Substantial product holders
The shares of the Company are quoted on NZX, ASX and Cboe Australia.
135
135
136
137
138
139
139
139
141
141
141
141
142
142
143
143
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 2023 (such disclosure being required by the Financial Markets Conduct Act
2013 (NZ)) and as at 1 August 2023 (such disclosure being required by the ASX Listing Rules):
Name
Perpetual Limited and subsidiaries
The Goldman Sachs Group, Inc
As at 30 June 2023
As at 1 August 2023
Number of
ordinary shares
in the Company
in which a
Relevant
Interest is held
51,749,373
38,857,882
Number of
ordinary shares
in the Company
in which a
Relevant
Interest is held
% of ordinary
shares held1
% of ordinary
shares held1
7.167
5.382
51,749,373
38,857,882
7.167
5.382
1 Based on issue share capital of 721,976,214 as at 30 June 2023 and 1 August 2023.
The total number of voting shares on issue as at 30 June 2023 was 721,976,214 and the total number of voting shares on issue as at
1 August 2023 was 721,976,214.
2. Voting rights
During the period 1 July 2022 to 30 June 2023, 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.
135
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
3. Twenty largest fully paid equity security holders
The names of the 20 largest holders of ordinary shares in the Company as at 1 August 2023 are listed below:
Rank
Investor name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Bnp Paribas Nominees NZ Limited Bpss40*
Tea Custodians Limited*
HSBC Nominees (New Zealand) Limited*
HSBC Nominees (New Zealand) Limited*
Citibank Nominees (Nz) Ltd*
Accident Compensation Corporation*
JPMORGAN Chase Bank*
New Zealand Superannuation Fund Nominees Limited*
New Zealand Depository Nominee
National Nominees Limited
Bnp Paribas Noms Pty Ltd
Premier Nominees Limited*
HSBC Custody Nominees (Australia) Limited Gsco Eca
JBWERE (Nz) Nominees Limited
Public Trust*
HSBC Custody Nominees (Australia) Limited
Custodial Services Limited
Total
Number of
shares
102,193,637
% Issued
capital
14.15
42,678,694
41,070,224
32,248,620
25,502,735
22,757,500
22,307,717
20,759,419
19,790,745
19,756,171
15,948,875
15,850,202
13,975,179
10,635,729
8,734,699
7,146,025
6,784,269
6,316,029
6,000,490
4,931,622
5.91
5.69
4.47
3.53
3.15
3.09
2.88
2.74
2.74
2.21
2.20
1.94
1.47
1.21
0.99
0.94
0.87
0.83
0.68
445,388,581
62.00
*
These shares are held through New Zealand Central Securities Depository Limited (NZCSD), a depository system which allows electronic trading of securities to
members.
136
COMPANY DISCLOSURES CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter 4. Spread of security holders as at 1 August 2023 and number of holders
a) Fully paid ordinary shareholders
Size of Shareholding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 shares or more
Total
Number of
holders
Number of
shares
54,584
21,705
4,146
2,861
19,418,165
52,693,474
30,773,605
68,990,542
174
550,100,428
83,470
721,976,214
%
65.39
26.00
4.97
3.43
0.21
100
As at 1 August 2023, and based on the closing market price on that date, the number of holders with 181 or less ordinary shares (being
less than a minimum holding of NZ$1,000 under the NZX Listing Rules) was 1,718 and the number of holders with 97 or less ordinary
shares (being less than a marketable parcel of A$500 under the ASX Listing Rules) was 10,511.
b) Performance rights (unlisted securities not quoted by the ASX or NZX)
Size of holding
1 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 performance rights or more
Total
Number of
Holders
Number of
rights
1
5
39
15
60
4,234
38,916
1,583,045
4,468,314
6,094,509
%
0.069
0.639
25.975
73.317
100
137
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
5. Directors’ relevant interests and share dealings
Directors of the Company reported the following acquisitions and disposals of relevant interests in financial products of the Company
during the period 1 July 2022 to 30 June 2023:
Registered holder
David Bortolussi
DMZSK Super Pty Ltd
DMZSK Pty Ltd
DMZSK Pty Ltd1
Pip Greenwood
The New Zealand Guardian
Trust Company Limited as
the supervisor for Craigs
KiwiSaver Scheme
Beneficial/
Non-beneficial
Acquired/
(Disposed)
Class of financial
product
Consideration
paid/(received)
NZD
Date
Beneficial
Beneficial
Beneficial
501,180
Performance Rights
30 September 2022
(155,641)
Time-based rights
2 February 2023
155,641
Ordinary shares
2 February 2023
N/A
N/A
N/A
Beneficial
30,000
Ordinary shares
29 November 2022
187,905.90
1 Reflects the issue of ordinary shares to David Bortolussi following the vesting and automatic exercise of time-based rights.
Directors of the Company as at 30 June 2023 held the following relevant interests in the financial products of the Company as at
that date:
Registered holder
David Hearn
David Lovat Gordon Hearn
David Bortolussi
DMZSK Pty Ltd as trustee of D&M Bortolussi Family Trust
DMZSK Pty Ltd as trustee of D&M Bortolussi Family Trust
DMZSK Super Pty Ltd as trustee for D&M Bortolussi
Superannuation Fund
Warwick Every-Burns
Warwick Every-Burns as trustee of Wake Super Fund
Kathryn Every-Burns
Pip Greenwood
Beneficial/Non-
beneficial
Balance held
No.
Class of financial
product
Beneficial
1,055,000
Ordinary shares
Beneficial
Beneficial
311,283
969,483
Ordinary shares
Performance rights
Beneficial
501,180
Performance rights
Beneficial
Beneficial
75,000
25,000
Ordinary shares
Ordinary shares
The New Zealand Guardian Trust Company Limited as the
supervisor for Craigs KiwiSaver Scheme
Beneficial
30,000
Ordinary shares
Julia Hoare1
Julia Cecile Hoare
Kate Mitchell
Beneficial
50,000
Ordinary shares
Forsyth Barr Custodian Limited
Beneficial
1,000
Ordinary shares
1 Retired on 30 June 2023.
138
COMPANY DISCLOSURES CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter 6. Credit rating status
Not applicable.
7. NZX Waivers
There were no 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 2023.
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 2023 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.
– Julia Hoare, who retired as a director of the Company at the end of the reporting period, is a director of Meridian Energy Limited,
which is expected to supply electricity to MVM under a new power purchase agreement following completion of the project to convert
MVM’s current coal-fired boiler to a high-pressure electric boiler. While Ms Hoare had no involvement in the matters which are the
subject of discussion between Meridian and MVM, the Company and Ms Hoare have a protocol whereby Ms Hoare abstained from all
Board discussions and decisions involving the supply of electricity to MVM in connection with the boiler conversion project, and did not
receive relevant Board papers or parts of any Board papers, where this occurred.
– During the reporting period ended 30 June 2023, directors advised the Company of the following changes or additional entries in the
Company’s interests register:
Name of Director
Entity
Pip Greenwood
Vulcan Steel Limited
Warwick Every-Burns
Treasury Wine Estates Limited
Julia Hoare
Julia Hoare
Julia Hoare
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
Kate Mitchell
David Wang
Primeport Timaru Limited
Northport Limited
Comvita Limited
Chambers @ 151 Limited
Christchurch International Airport Limited
Farmright Limited
Firsttrax Limited
Heartland Bank Limited
Heartland Group Holdings Limited
Position
Ceased to be a director
Ceased to be a director
Appointed as a director
Appointed as a director
Appointed as a director
Director and shareholder
Director
Director
Director and shareholder
Director
Director
Helping Hands Holdings Limited
Director and shareholder
Link Engine Management International (NZ) Limited
Director
Link Engine Management Limited
Director
Morrison Horgan Limited
Director and shareholder
The New Zealand Merino Company Limited
Director
China’s State Agriculture Technology Innovation
Investment Consortium
Appointed as Vice President
No other entries were made in the interests registers of the Company’s subsidiaries during the reporting period.
139
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
8.2 Directors of subsidiary companies
The following persons held office as directors of subsidiary companies during the year ended 30 June 2023.
Subsidiary
The a2 Milk Company (Export) Limited
Jurisdiction
New Zealand
a2 Infant Nutrition Limited
New Zealand
a2 Holdings UK Limited
New Zealand
The a2 Milk Company (New Zealand) Limited
New Zealand
Mataura Valley Milk Limited
New Zealand
a2 Australian Investments Pty. Limited.
Australia
a2 Botany Pty Ltd
Australia
The a2 Milk Company (Australia) Pty Ltd
Australia
a2 Infant Nutrition Australia Pty Ltd
a2 Exports Australia Pty Limited
Australia
Australia
The a2 Milk Company (Nutrition) Pty Limited
Australia
The a2 Milk Company Limited
British Columbia, Canada
The a2 Milk Company Limited
The a2 Milk Company
The a2 Milk Company LLC
Scotland, UK
Delaware, USA
Delaware, USA
a2 Infant Nutrition (Shanghai) Co., Ltd.
The a2 Milk Company (Singapore) Pte. Ltd.
China
Singapore
Directors (or equivalent)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
David Muscat (appointed 14 November 2022;
resigned 28 May 2023)
Ping Zhang (appointed 28 May 2023)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
Julia Hoare (resigned 30 June 2023)
David Bortolussi (resigned 28 May 2023)
Shareef Khan (resigned 5 December 2022)
Deyong Zhang
David Muscat (appointed 5 December 2022)
Ping Zhang (appointed 5 December 2022)
Mark Sherwin (appointed 22 July 2022; resigned
5 December 2022)
Cao Siyuan (appointed 22 July 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
David Muscat (appointed 14 November 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
David Hearn
David Hearn
David Bortolussi
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
Xiao Li
David Bortolussi
Mark Sherwin (resigned 14 November 2022)
David Muscat (appointed 14 November 2022)
Shaun Singh
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 14.
140
COMPANY DISCLOSURES CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter 8.3 Use of Company information
The Board received no notices during the reporting period ended 30 June 2023 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 buyback
During the reporting period ended 30 June 2023, the Company completed its on-market share buyback programme. Over the course of
the buyback programme, the Company acquired 21,680,314 shares, representing 2.9% of issued capital. The average price for the
purchases was $6.87 per share (excluding brokerage costs), for a total consideration of approximately $149 million (including brokerage
costs). The acquired shares have been cancelled.
11. On-market purchases
Other than the on-market buyback as set out above, no shares of the Company were purchased on-market during the reporting period
ended 30 June 2023.
12. Donations
The Company and its subsidiaries have made donations of cash and products totalling $2,840,890 during the year ended 30 June 2023
(2022: $3,159,176).
141
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
13. 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 2023 and 30 June 2022
is as follows:
At 30 June 2023 At 30 June 2022
Directors
Females
Males
Gender diverse
Officers
Females
Males
Gender diverse
6
3
3
–
10
3
7
–
6
3
3
–
12
3
9
–
14. 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 2023.
The remuneration bands are expressed in New Zealand Dollars.
Number of
employees in
the year ended
30 June 2023
(based on actual
payments)
Value of
exercised
options and
rights included
in remuneration
range $
26
24
26
16
22
11
18
11
9
12
7
8
5
3
9
2
3
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
$200,000 – $209,999
$210,000 – $219,999
$220,000 – $229,999
$230,000 – $239,999
$240,000 – $249,999
$250,000 – $259,999
$260,000 – $269,999
$270,000 – $279,999
142
Remuneration Range
$ (gross)
$280,000 – $289,999
$290,000 – $299,999
$300,000 – $309,999
$310,000 – $319,999
$320,000 – $329,999
$330,000 – $339,999
$340,000 – $349,999
$350,000 – $359,999
$360,000 – $369,999
$370,000 – $379,999
$380,000 – $389,999
$400,000 – $409,999
$420,000 – $429,999
$430,000 – $439,999
$460,000 – $469,999
$480,000 – $489,999
$510,000 – $519,999
$530,000 – $539,999
$550,000 – $559,999
$560,000 – $569,999
$590,000 – $599,999
$630,000 – $639,999
$670,000 – $679,999
$680,000 – $689,999
$690,000 – $699,999
$700,000 – $709,999
$730,000 – $739,999
$780,000 – $789,999
$800,000 – $809,999
$810,000 – $819,999
$820,000 – $829,999
$830,000 – $839,999
$840,000 – $849,999
$970,000 – $979,999
$990,000 – $999,999
$1,080,000 – $1,089,999
$1,190,000 – $1,199,999
$1,350,000 – $1,359,999
$1,520,000 – $1,529,999
$1,750,000 – $1,759,999
$2,280,000 – $2,289,999
Number of
employees in
the year ended
30 June 2023
(based on actual
payments)
Value of
exercised
options and
rights included
in remuneration
range $
4
7
4
5
3
5
2
2
1
2
1
1
1
1
1
1
1
2
1
1
1
1
3
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,971
–
–
–
–
–
–
–
561,511
579,482
Total
286
COMPANY DISCLOSURES CONTINUEDTHE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter 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 2023 relating to FY24, and long-term incentives that have
been granted and have not yet vested or been exercised (as applicable).
15. 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 2023.
16. 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.
Group EBITDA
Depreciation and amortisation
EBIT
Interest income
Interest expense
Income tax expense
Net profit after tax
Attributable to:
Owners of the Company
Non-controlling interests
2023
$’000
219,298
(18,197)
201,101
26,733
(4,972)
(78,021)
144,841
155,638
(10,797)
144,841
2022
$’000
196,214
(18,929)
177,285
6,569
(2,467)
(66,646)
114,741
122,624
(7,883)
114,741
143
ANNUAL REPORT 2023 CEO’s year in review
Financial statements
Corporate directory
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
144
THE a2 MILK COMPANYBuilding a sustainable growth businessCorporate governanceCompany disclosuresChair’s letter 145
ANNUAL REPORT 2023 thea2milkcompany.com
The a2 Milk Company Limited (Australian Registered Body Number 158 331 965 – Incorporated in New Zealand)