2024
ANNUAL
REPORT
We pioneer the future of Dairy for good
The a2 Milk Company
1
Sales revenue reflects Net Sales Revenue and excludes Other Revenue.
2
Excludes liquid milk products (plain and fortified) exported to China and Other Asia markets.
3
Comprises powdered milk products (plain and fortified), and liquid milk products
(plain and fortified) exported to China and Other Asia markets.
4 Attributable to owners of the Company.
5
Earnings per share (basic).
The Company’s strong
execution of its growth
strategy is delivering
positive results
EBITDA
NPAT4
EPS5
$123m
$219m
$196m
$234m
$81m
$156m
$123m
$168m
10.9c
21.2c
16.5c
23.2c
FY21
FY21
FY21
FY22
FY22
FY22
FY23
FY23
FY23
FY24
FY24
FY24
Sales Revenue1
Infant milk
formula (IMF)
Liquid milk2
Ingredients
Other
nutritionals3
$1,205m
FY21
FY22
FY23
FY24
$914m
$1,022m
$1,108m
$1,160m
$232m
$254m
$289m
$303m
$59m
$63m
$104m
$80m
$114m
$110m
$101m
$1,444m
$1,591m
$1,673m
Chair’s letter
2
CEO’s year in review
5
Building a sustainable growth business
14
Who we are
15
What we do
16
How we create value
18
Our growth strategy
20
Our reporting approach
23
People
24
Planet
34
Consumers
44
Shareholders
50
Risks and opportunities
54
Corporate governance
64
Directors
68
Executive Leadership Team
70
Remuneration
72
Financial statements
80
Company disclosures
141
CHAIR’S LETTER
PIP
GREENWOOD
I am pleased to report another year of strong performance
for The a2 Milk Company (a2MC). Despite category and
macroeconomic challenges in our key markets, we have
executed well against our plans.
2
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
CEO’s year in review
Chair’s letter
We have focussed on delivering against the objectives we shared
back in October 2021 when we refreshed our growth strategy, and
pleasingly are on track to achieve our financial and non-financial
ambitions.
FY24 was a significant year for the Company. Following re-
registration from China’s State Administration for Market
Regulation (SAMR) of our upgraded China label infant milk
formula (IMF) product in June 2023, the past year has required
meticulous planning and diligent execution to ensure our product
was launched and transitioned effectively into the market.
Given the positive signs we have seen including strong consumer
offtake and healthy metrics for product freshness and in-market
pricing, we are pleased that the transition has been successful.
Throughout this process we were well supported, and extend
our gratitude to 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, and our manufacturing partner, Synlait and its
major shareholder Bright Dairy. I also want to thank our a2MC
team who have dedicated so much time and care to deliver
this outcome.
We continue to be proud of our New Zealand origins and are
delighted that in China, our largest market, our consumers highly
value the A1 protein free proposition and our products’ New
Zealand provenance. Being the pioneer of A1 protein free helps us
differentiate our products in a competitive market. It is especially
pleasing that we have now achieved a top 5 position in the China
IMF market with our China and English label products combined.
Our liquid milk businesses in Australia and the USA also
progressed well in FY24 with innovation delivering positive
results and we continue to progress our application for long-term
US Food and Drug Administration approval to import IMF into
the USA.
Our strategy has also been to invest in people and planet
leadership and we are pleased to have made progress with this
again in FY24. We continued to invest in building capability,
particularly in China and in our supply chain. On sustainability,
we have made progress as well with the highlight for the year
being the commissioning of a high-pressure electrode boiler at
MVM. We also invested in AgriZeroNZ, a world-first partnership
between the New Zealand Government and other industry
stakeholders, aimed at helping farmers reduce greenhouse gas
emissions, while maintaining profitability and productivity.
We have also been focussed on ramping up innovation and
transforming our supply chain. We introduced a new English
label IMF product this year and expanded our commercial supply
chain partnerships with New Zealand New Milk (a subsidiary of
Lactalis) and with Yashili New Zealand (a subsidiary of Mengniu).
We also produced IMF base powder and fortified milk powders
in partnership with Mataura Valley Milk (MVM), supported by
MVM’s minority shareholder China Animal Husbandry Group.
This in turn has also contributed to improved profitability at
MVM which remains a focus.
The Company recently announced that it had resolved its
arbitration disputes with Synlait and that it intended to
support and participate in Synlait’s equity raise. The disputes
settlement is conditional on Synlait completing its equity
raise and the refinancing of its banking facilities. The disputes
settlement removes the uncertainty associated with arbitration
and includes the cancellation of Synlait’s exclusive rights to
manufacture and supply Stages 1 to 3 of a2MC’s current IMF
products (being a2 Platinum® and a2 至初®) for sale by a2MC
in the markets of China, Australia and New Zealand with effect
from 1 January 2025. This will provide the Company with supply
flexibility in the future.
Obtaining access to additional China label SAMR registrations
is a critical part of the Company’s supply chain transformation
strategy and remains a top priority of the Board. As part of the
Synlait disputes settlement we have secured agreement to
access a potential second China label IMF registration slot to be
developed with Synlait subject to SAMR approval. The Company
is working on securing more registrations which is likely to
require significant capital investment and we hope to provide
more details over the coming year.
We continue to prioritise investment in growth opportunities
focused on our supply chain transformation and will also
consider other investment opportunities over time. To the
extent there is a surplus capital available, the Board will make
a disciplined assessment of the potential to return capital to
shareholders and the most appropriate option to do so.
It was another busy year for the Board and I thank all Directors
for their contribution to the Company. I also thank our Managing
Director and CEO, David Bortolussi, his Executive Leadership
Team, and all our team members across China, New Zealand,
Australia and the USA for the way in which they live our values
and execute our strategy.
It has been an honour and privilege for me to serve on the
Board of The a2 Milk Company over the past five years, and
I am delighted to have taken on the role as Chair of the Board.
On behalf of the Board I extend our thanks to the former Chair,
David Hearn, for his many years of service to the Company, until
stepping down in November 2023.
I am excited about the future of our Company given the
progress we have made and the opportunities we are seeking to
capitalise on. Our fantastic brand continues to resonate with our
consumers in our key markets. This gives me confidence in the
future and our direction.
Finally, to our shareholders, thank you for your ongoing support
and interest in the Company. We look forward to seeing many of
you at the Annual Shareholders Meeting in November.
Pip Greenwood
Chair
18 August 2024
The a2 Milk Company 2024 Annual Report
3
Image by Britta Campion/Newspix.
4
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
CEO’S YEAR IN REVIEW
DAVID
BORTOLUSSI
Strong execution delivered positive FY24 result
The Company continued to execute well against its growth strategy, primarily focused
on the China market, delivering positive FY24 results.
Group financial performance1, 2, 3
The a2 Milk Company (“the Company”, “a2MC”) announces its financial results for the 12 months ended 30 June 2024.
Key results are as follows:
FY24 ($m)
FY23 ($m)
Variance (%)
Revenue
1,675.5
1,592.9
5.2%
EBITDA4
234.3
219.3
6.9%
Net profit after tax
- Attributable to owners of the Company
167.6
155.6
7.7%
Basic earnings per share (cents)
23.2
21.2
9.2%
Net cash5
968.9
757.2
28.0%
Revenue was up 5.2% to $1,675.5 million, driven by continued growth in the China & Other Asia segment up 14.1%, partially offset
by a 14.6% decrease in the ANZ segment mainly due to a change in distribution strategy (with English label infant milk formula
(IMF) sales shifting to the China & Other Asia segment). USA segment revenue increased 8.2% and MVM decreased 11.0%.
Total IMF sales grew 4.6% with China label up 9.5%. English label IMF sales were down 0.3%, growing 6.9% in 2H24 versus 2H23.
Liquid milk sales grew 4.8%, with ANZ up 3.3% and USA up 7.4%. Other nutritional sales, which consist of non-IMF powdered milk
products and China & Other Asia liquid milk products, grew 36.7%, and ingredients (MVM) decreased 11.0%.
Gross margin percentage6 of 45.8% was 0.6ppts lower than FY23, primarily due to higher input costs associated with the
upgraded China label product, a2 至初®, and the impact of MVM’s coal-boiler accelerated depreciation, partially offset by margin
improvement initiatives. Excluding the MVM boiler depreciation impact of $10 million, gross margin as a percentage of net sales
revenue was broadly similar to prior year.
1
All references to full year (FY), halves (H) and quarters (Q) relate to the Company’s financial year, ending 30 June.
2
All figures are in New Zealand Dollars (NZ$), unless otherwise stated.
3
All comparisons are with the 12 months ended 30 June 2023 (FY23), 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 FY24 Investor Presentation (slide 59) dated 19 August 2024.
5
Including term deposits and borrowings, excluding subordinated non-current shareholder loans.
6 Gross margin percentage is calculated as sales less cost of goods sold, divided by sales.
The a2 Milk Company 2024 Annual Report
5
PLACEHOLDER FOR CEO
$303m
Liquid milk
4.8%
$1,160m
Infant nutrition
4.6%
$110m
Other nutritionals
36.7%
* Revenue excluding intercompany sales.
$1,675m
Revenue
5.2%
$168m
NPAT attributable to owners
of the Company
7.7%
$234m
EBITDA
6.9%
23.2c
Earnings per share
9.2%
$256m
Operating cash flow
$969m
Net cash
GROUP
PERFORMANCE
PRODUCT SEGMENT
REVENUE
OPERATING SEGMENT REVENUE
CEO’s year in review (continued)
6
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
$1,143m
China and Other
Asia
14.1%
$317m
Australia and
New Zealand
14.6%
$114m
USA
8.2%
$101m*
Mataura Valley Milk
11.0%
Distribution costs were slightly lower, with higher costs
associated with China label IMF product transition offset by
an improvement in USA freight rates and increased focus on
customer cost to serve.
Marketing investment increased 7.6% to $280.1 million
(16.7% of net sales revenue) and support the launch and
transition of the upgraded GB registered China label IMF
product, a2 至初®. Administrative and other expenses (SG&A)
increased 3.3% to $236.2 million primarily due to capability
and other investment, particularly in China and supply chain.
This was partially offset by lower LTI expenses and reduced
FX hedge losses. SG&A as a percentage of net sales revenue
reduced from 14.4% in FY23 to 14.1% in FY24.
EBITDA increased 6.9% to $234.3 million, with EBITDA
margin increasing to 14.0% (up 0.2ppts). Depreciation and
amortisation increased to $32.2 million due to the accelerated
depreciation of the MVM coal-fired boiler following the
successful commissioning of a high-pressure electrode boiler.
Net finance income increased to $35.9 million reflecting
higher cash balances and increased market interest rates.
NPAT including amounts attributable to non-controlling
interests was $153.9 million, an increase of 6.2%. Amounts
attributable to non-controlling interests, a loss of $13.7 million,
represent China Animal Husbandry Group’s 25% interest in
MVM. Excluding this loss, NPAT attributable to owners of the
Company was $167.6 million, up 7.7%.
The balance sheet further strengthened during the year with
closing net cash of $968.9 million, up $211.7 million on prior
year. Inventory of $179.6 million was down 7.1% on prior year,
largely due to a reduction in English label inventory levels
driven by late inventory receipts in the prior year and lower
China label and English label early stage inventory due to
2H24 sales performance.
Excluding interest and tax, operating cash inflow was
$294.5 million, representing operational cash conversion
of 125.7%7, up 67.5ppts on prior year. FY23 was impacted
by higher payments due to catch-up payments delayed from
FY22 into 1H23 due to COVID-19 related disruptions (outside
of the Company’s control) and the earlier timing of payments
for China label IMF products impacted by the GB registration
transition.
7
Operating cash conversion defined as net cash flow from operating activities before interest and tax divided by EBITDA.
8 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key&A + BCD cities); unless otherwise stated.
Kantar had a major round of data update in 2H24 which resulted in the restatement of historical data.
9 China National Bureau of Statistics.
10 Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value). FY24 versus FY23.
11 Smart Path China IMF online market tracking: for DOL only retail sales (by value). FY24 versus FY23.
12 Smart Path China IMF online market tracking: for CBEC only retail sales (by value). FY24 versus FY23.
China market update8
The number of newborns in China declined 5.6% in CY23 to 9.0
million9 reflecting an improvement in trajectory over the past
several years with a positive outlook for CY24, but with longer
term decline expected due to socio-demographic trends.
The China IMF market declined 8.6% in volume and 10.7% in
value in FY24. The decline in Key&A cities exceeded BCD cities,
with Key&A market value decreasing 11.9% and BCD market
value decreasing 9.4%. The market decline reflected the
cumulative impact of fewer newborns, increased competitive
intensity and challenging macroeconomic conditions.
China label IMF market value declined 12.5% with the mother
and baby stores (MBS) channel down 16.1%10 and domestic
online (DOL) channel down 12.2%11. Across China label
channels, there was significant pricing pressure impacted
by the combination of volume pressure resulting from fewer
newborns, the market-wide transition to new GB registered
products with clearance of old GB registered products, and
challenging macroeconomic conditions.
Following several years of significant declines, the English
label IMF market outperformed the overall market with value
up 3.8%. A proportion of consumers switched from China label
product to English label product, and the English label market
recovered value share to 17.2% of the overall China IMF market,
up from 15.3% in FY23. English label channel mix continued
to shift – the Daigou channel experienced a further significant
decline of 14.3%, while the offline-to-online (O2O) channel grew
by 5.5% and cross-border e-commerce (CBEC) experienced
significant growth up 11.0%12. a2MC’s distribution strategy is
focused on continuing to expand share in the growing CBEC
and O2O channels which account for approximately 69% of
the English label market, including emerging channels such as
Douyin/TikTok.
Market dynamics and the market-wide GB registration
transition have led to increasing brand concentration within the
China IMF market with all top-5 brands gaining market share
and now representing over 54% of market value.
In the context of challenging macroeconomic and IMF market
conditions, a2MC’s growth in FY24 in China label IMF of 9.5%
and total IMF of 4.6% reflected a strong performance overall.
The a2 Milk Company 2024 Annual Report
7
“A major highlight for the year
was the successful launch of
our upgraded China label IMF
product, a2 至初®.”
Regional and product
performance
1. China & Other Asia
Growth in the China & Other Asia segment was driven by
continued strong execution of the Company’s growth strategy
and the well-executed China label IMF product launch and
transition. Revenue of $1,143.1 million was up 14.1%, with
EBITDA of $290.1 million up 14.2%. The combination of
increased investment, high impact marketing campaigns and
strong sales execution underpinned further improvements in
key brand health metrics and market share during the year.
This resulted in a2MC becoming a top-5 IMF brand in the
overall China IMF market taking into account its combined
share in both the China and English label markets. New highs
in China brand health metrics were achieved with total a2MC
IMF prompted brand awareness increasing from 63% to 66%,
unprompted brand awareness increasing from 23% to 25%, top
of mind brand awareness increasing from 9% to 12%, and trial
and brand equity metrics increasing with the target audience13.
China & Other Asia: China label IMF
China label IMF sales increased to $612.3 million, up 9.5%.
The continued strong performance of China label IMF was
underpinned by the careful execution and transition to
the upgraded China label IMF product, a2 至初®. This was
achieved despite the declining market and continued volatility.
Consumer demand for a2 至初® remained strong with market
value share improving both in-store and online, supported by
the upgraded formulation and packaging.
To support the launch and transition of the upgraded a2 至初®
product, marketing investment was increased with integrated
campaigns across all sales channels and media including
high impact advertising reinforced at point of sale. This was
complemented by bespoke activities for key MBS accounts
and impactful brand days with key DOL platforms.
13 a2MC internal data based on the Company’s brand health tracking undertaken by Ipsos. Average brand health metrics for each financial year based
on 3 surveys in FY21 and FY22, 2 surveys in FY23, and 3 surveys in FY24. Sample skews to a2MC target consumers (ie higher income earners based in
Provinces / cities that are the focus of sales and marketing activities).
14 a2MC internal data tracking of stores with active sales in the past 6 months.
15 Nielsen MBS retail measurement service: mother and baby stores only retail sales (by value). FY24 versus FY23. Nielsen had a round of panel
enhancement in Jan-24 which led to the restatement of historical data.
16 Smart Path China IMF online market tracking: for DOL only retail sales (by value). FY24 versus FY23.
17 English label IMF includes sales via CBEC, Korea, Vietnam and Hong Kong Resellers.
18 Smart Path China IMF online market tracking: for CBEC only retail sales (by value). FY24 versus FY23.
MBS weighted distribution increased modestly as well as same
store sales, driving share gains. Offline distribution increased to
over 29,000 stores, with the growth largely occurring in 2H24
from increased expansion in BCD cities14. A significant number
of store closures occurred in the market during the period
reflecting challenging retail and IMF category conditions.
Building share in national key accounts, increasing distribution
in regional key accounts, targeting greater penetration of BCD
cities, and testing new strategies for accelerated growth in
prioritised provinces are key priorities.
Retail market value for the MBS channel was down 16.1%15,
reflecting the cumulative impact of fewer newborns, store
closures and disruption driven by the market wide transition to
new GB products and challenging macroeconomic conditions.
a2MC’s market value share in MBS increased to 3.5% compared
with 3.3% at the end of June 2023.
Online growth for China label IMF was another highlight. While
retail market value for the DOL channel was down 12.2%16,
a2MC’s market value share in DOL increased to 3.9% compared
with 3.3% in FY23. a2MC’s share of early-stage product sales
continued to increase as more users shift to online channels.
China & Other Asia: English label IMF17
The China & Other Asia segment continued to benefit from
a2MC’s strategic decision to focus on CBEC and O2O channels,
investment in execution capability, and leading distributor
partnerships. English label IMF sales in the China & Other Asia
segment of $447.8 million were up 16.0%.
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. While reported CBEC market share decreased from
22.6% to 20.5%18, there was strong growth in retail sales of
a2MC English label IMF through emerging CBEC channels such
as Douyin/TikTok, which are not included in a2MC reported
Smart Path market share data. Similar to DOL, a2MC’s share of
early-stage product sales increased significantly in CBEC.
CEO’s year in review (continued)
8
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Another key focus for English label distribution has been the
development of the O2O channel. a2MC has further improved
its distribution footprint and share in O2O key accounts, ‘long-
tail’ O2O and ‘POP’ accounts, continuing its partnership with
Yuou, one of the leading O2O distributors in China.
The distribution model was further refined in FY24 including
the increased utilisation of drop-shipping fulfilment models
via Tier-1 distributors to service O2O stores and C2C networks.
Trade inventory positions were reduced and service and
fulfilment time for consumers was improved. In addition,
shipments of a2 Platinum® IMF to Vietnam commenced
in 2H24.
Overall, the Company’s total English label market share
in China increased to 20.2%19.
China & Other Asia: Other nutritional products
Sales of other nutritional products in the China & Other Asia
segment were up 46.4% to $82.9 million, benefitting from new
products launched in FY23 and FY24, a new organisational
structure put in place to focus on this important opportunity
and improved execution. The strong performance in these
categories, particularly in milk powder and UHT, was also
supported by increased marketing investment through brand
building campaigns, leveraging both the a2TM brand’s online
and offline execution success.
19 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share for FY24.
20 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share for FY24.
21 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key & A + BCD cities). 12-month rolling share. FY24 versus FY23.
2. Australia and New Zealand
The Australia and New Zealand (ANZ) segment result was
driven by lower IMF sales to the Daigou channel due to a
change in a2MC’s EL IMF distribution strategy and a relatively
strong prior corresponding period associated with the
a2 Platinum® refresh. Overall, ANZ revenue of $317.3 million
was down 14.6%, and EBITDA of $63.0 million was down 32.6%.
Australia and New Zealand: English label IMF and other
nutritionals products
The Daigou channel market value was down 14.3% in FY2420.
Whilst IMF reseller and retail sales decreased 39.4% to
$98.5 million versus FY23, both sales and channel declines
have stabilised more recently during the year. While English
label IMF focus remains on the CBEC and O2O channels,
support for the Daigou channel continued through consumer
marketing campaigns and further enhanced reseller trade
support programmes.
O2O and Daigou channel combined market value was down
10.0% with growth in the O2O channel partially offsetting
Daigou channel decline. a2MC’s market share in the O2O and
Daigou channel slightly decreased to 19.7% in FY24 versus
20.3% in FY2321.
The a2 Milk Company 2024 Annual Report
9
“In FY24, the Company
continued to drive a2 Milk®
Lactose Free penetration in
Australia and improved USA
profitability significantly.”
To broaden its English label IMF portfolio, the Company
progressed the development of English label IMF products with
a new commercial IMF supply partner (Yashili NZ, a subsidiary
of Mengniu). a2 Gentle Gold™, which is positioned below
a2 Platinum®, was launched late in 2H24 in Australian retail
channels and selected channels in China. a2MC is expecting
to launch an additional English label product to be positioned
above a2 Platinum® in FY25.
Revenue for other nutritional products was up 13.5% to
$26.8 million with the portfolio continuing to grow during
the year, with the launch of two new fortified products
(a2™ Immune and a2™ Move) during the second half.
Australia and New Zealand: Liquid milk
Australian liquid milk sales were up 3.3% to $190.2 million led
by the contribution from a2 Milk® Lactose Free, partly offset by
lower sales from the core milk range. This reflects a challenging
consumer environment impacted by cost-of-living pressures,
with a market shift from branded milk products to private label
in the category overall which stabilised during 4Q24. Despite
the challenging market conditions, a2MC’s market value share
of 11.5% grew 0.2ppts versus 1H24, supported by a2 Milk®
Lactose Free which grew to 13.5% share22 of the lactose free
category. a2 Milk® (including a2 Milk® Lactose Free) is now
the number one dairy milk brand nationally23. Growth in FY24
was supported by dedicated marketing activations to drive
awareness and purchase.
An upgrade of the Smeaton Grange facility was completed
and the upgrade of the Kyabram milk processing facility with
Kyvalley Dairy Group is on track for completion during FY25.
22 IRI Australian Grocery Weighted Scan, share of Dairy Milk market, MAT period.
23 IRI Australian Grocery Weighted Scan, dollar share, MAT to June 2024.
24 SPINS data for the Grocery channel only for the 52 weeks ending 30 June 2024 and 30 June 2023.
3. USA
USA grew revenue by 8.2% to $113.7 million and significantly
improved its landed margin (gross margin less distribution
costs) resulting in an improved EBITDA loss of $15.5 million
(FY23: $23.3 million loss).
The revenue increase was mainly driven by a reduction in
promotional activity and supported by growth of the a2 Milk®
Grassfed product. a2MC’s market value share in the premium
milk category for the Grocery channel was slightly down at
2.2% (FY23: 2.3%)24.
a2MC commenced distribution of a2 Platinum® IMF during
FY24 under the US Food and Drug Administration’s (FDA)
short-term Enforcement Discretion approval with selected
retailers in-store and online including Amazon and Walmart.
Sales recognised during the year were not material, with a
focus on establishing the supply chain and trialing different
sales and marketing approaches, whilst pursuing long-term
FDA approval. a2MC’s New Infant Formula Notification is on
track to be filed during 1Q25, with long-term approval targeted
to be achieved during FY26, subject to FDA approval.
The improved EBITDA loss was due to reduced promotional
activity, improved input costs and distribution rates and
reduced SG&A costs, partly offset by higher costs incurred
with respect to pursuing long-term FDA approval.
Accelerating the path to profitability in the USA remains a
priority. Whilst USA losses have significantly reduced, given
the likely investment related to USA IMF, the timeframe to
achieve profitability is now more likely to be by FY27, with
the USA liquid milk business expected to achieve breakeven
contribution margin in FY26.
CEO’s year in review (continued)
10
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
4. Mataura Valley Milk
During FY24, the Company continued to execute against its
supply chain transformation strategy, including developing
nutritional manufacturing capability, increasing access to
raw A1 protein free milk in Southland (including organic) and
commencing the production and sale of a2 Platinum® Stage 4
IMF base powder with a new commercial supply chain partner
(New Zealand New Milk, a subsidiary of Lactalis).
Revenue of $101.4 million25 and an EBITDA loss of $20.5 million
were recorded for the period. The improved EBITDA loss
position (FY23: $26.5 million) reflects an improved sales mix,
with increased volume of higher-value products (including
nutritional base powder), plus a continued cost and
productivity focus across the site. The improved loss profile
in 2H24 largely reflects higher nutritional and A1 protein free
powder sales, plus the normal impact of the seasonal winter
shutdown during the first half.
Accelerating MVM’s path to profitability is also a key priority.
Growth in A1 protein free milk supply, nutritional product
mix and facility utilisation are key drivers of profitability.
Whilst management is working on a range of initiatives to
achieve breakeven by FY26, at this stage it is more likely that
profitability will be achieved by FY27.
Innovation and supply chain transformation
The Company advanced several initiatives to ramp-up
innovation and transform its supply chain during the year.
Significant innovation milestones included the Company’s
upgraded GB registered China label IMF product, a2 至初®,
as well as the launch of a new English label IMF product,
a2 Gentle Gold™, into Australian retail channels and selected
China channels, organic milk powder in a tub and new fortified
milk powder products in 2H24 targeting adults and the growing
seniors market. Alongside product innovation, the Company
continued to invest in innovation and product development
capability to unlock future opportunities.
The Company progressed its supply chain transformation
strategy during FY24 through new commercial supply chain
partnerships with New Zealand New Milk (subsidiary of
Lactalis) and Yashili NZ (subsidiary of Mengniu), and produced
new A1 protein free products in partnership with MVM,
including nutritional base powders.
25 Revenue excluding intercompany sales.
26 In respect of Stages 1-3 of a2MC’s current IMF products (being a2 Platinum® and a2 至初®) for sale by a2MC in the markets of China, Australia and
New Zealand.
As announced on 16 August 2024, the Company resolved the
various disputes subject to arbitration with Synlait Milk Limited
(Synlait) subject to Synlait completing its equity raise and the
refinancing of its existing banking facilities. The Company also
agreed to support and subscribe for shares under Synlait’s
equity raise on terms to be agreed, to be set out in Synlait’s
forthcoming notice of meeting. The resolution of the disputes
will remove any arbitration uncertainty and the cancellation
of Synlait’s manufacturing and supply exclusivity rights26 from
1 January 2025 will provide additional flexibility to a2MC to
further enable its supply chain transformation strategy. The
Company also expects to gain access to a potential additional
China label registration slot at Synlait’s Dunsandel facility to
be developed by December 2029 subject to SAMR approval.
The Company is working on options to accelerate access
to additional controlled China label IMF registrations to
achieve greater China market access and to develop its own
manufacturing capability consistent with its growth strategy.
Capital management
The Board is conscious of the significant amount of net cash
held on the balance sheet at year end. Consistent with the
Company’s capital allocation framework, priority is being
given to transforming and de-risking a2MC’s supply chain to
enable future growth focused on investment in New Zealand
and China. Once the Company’s supply chain transformation
is further developed and other investment opportunities are
considered, to the extent there is a capital surplus to achieving
a2MC’s priorities, the Board will make a disciplined assessment
of the potential to return capital to shareholders and the most
appropriate option to do so.
The a2 Milk Company 2024 Annual Report
11
CEO’s year in review (continued)
Sustainability
Significant progress was made in executing against the
Company’s sustainability goals with 100% of certified farms
supplying raw A1 protein free milk to have an upgraded
animal welfare programme and a farm environmental plan
in place. The Company continued to invest in its a2™ Farm
Sustainability Fund in New Zealand and Australia with high
participation by farmer suppliers. Regarding sustainable
packaging, the Company continued to collaborate with industry
groups and progressed against its roadmap. However, more
work is required to meet packaging targets which will be a
focus in FY25.
From a climate perspective, the Company significantly reduced
its Scope 1 and 2 GHG emissions by 45%27. This achievement
was heavily supported by the successful commissioning of
a high-pressure electrode boiler at MVM, along with the full
electrification of the MVM site, powered by certified renewable
energy28. The Company also made good progress against
its target of net zero Scope 3 GHG emissions by 2040 by
completing a methane inhibitor feasibility study in Australia
and investing in AgriZeroNZ, a partnership between the New
Zealand Government and major agribusiness companies to
reduce on-farm biogenic methane and nitrous oxide emissions.
Medium-term ambition
In October 2021, as part of its refreshed growth strategy,
a2MC defined its medium-term financial ambition (ie by
FY26 or later) to grow revenue from $1.2 billion in FY21 to
approximately $2 billion and to target EBITDA margins in
the ‘teens’.
The Company’s execution of its growth strategy has been in
line with its expectations, and it is well positioned to achieve
future growth, despite the China IMF market having contracted
significantly more than expected at the time it set its ambition.
27 Using market based calculation for Scope 2.
28 MVM purchases Meridian’s Certified Renewable Energy production values product to enable it to exclusively match the amount of electricity it uses
on an annual basis with an equivalent amount of electricity put into the national grid from one of Meridian’s hydro stations or wind farms (which have
been independently verified as producing 100% renewable electricity). Actual electricity received on location is from mixed renewable and fossil fuel
sources, due to the nature of the electricity transmission and distribution system.
29 a2MC Group sales and EBITDA FY21 versus FY24.
30 a2MC sales of China label FY21 versus FY24.
31 a2MC sales of English label FY21 versus FY24.
32 Kantar Worldpanel 0-6 years old Baby & Kids panel: National IMF market tracking (Key&A + BCD cities). China and English labels combined.
MAT to June 2021 versus MAT to June 2024.
33 a2MC sales of other nutritionals FY21 versus FY24. Other nutritionals consists of non-IMF powdered milk products and China & Other Asia liquid milk.
34 a2MC sales of liquid milk in ANZ and USA FY21 versus FY24.
The Company announced on 19 February 2024 as part of its
FY24 Interim Results that whilst it remains possible for the
Company to achieve its medium-term revenue ambition of
approximately $2 billion by FY26 or later, at this stage it is
likely to be achieved by FY27 or later. The Company continues
to target EBITDA margins in the ‘teens’ with year-on-year
improvement.
Since announcing its refreshed growth strategy in 2021, a2MC
has gained significant share in the China IMF market and
achieved strong growth in Group revenue and EBITDA of 38.8%
and 89.9% respectively29. a2MC has grown its China label IMF
sales by 57.1%30 and stabilised its English label IMF sales, which
were up 4.4%31. The Company has increased its share of the
total China IMF market from 4.9% to 7.3%, becoming one of the
most successful brands in China and in the top-5 overall32.
a2MC has significantly transformed its IMF channel mix,
continuing to focus on CBEC and O2O channels and away from
the Daigou channel. As a result, the China label, CBEC and O2O
channels represented approximately 90% of the Company’s
IMF sales in FY24 compared to approximately 60% in FY21. The
Company has also grown sales in the other nutritional products
category by 86.1%33 and its combined liquid milk business in
ANZ and USA by 30.3%34.
Delivery of a2MC’s medium-term financial and non-financial
ambition remains underpinned by the successful execution of
its strategy which is comprised of five key strategic priorities:
1. Investing in people and planet leadership – particularly
in relation to its capability and sustainability objectives
2. Capturing the full potential in China IMF – including
expansion into lower tier cities and online channels
3. Ramping-up product innovation – including portfolio
expansion in English label IMF, China label IMF and
other nutritionals for kids, adults and seniors, as well
as leveraging the portfolio into new markets
4. Transforming its supply chain – particularly accessing
additional China label IMF registrations and developing
its nutritional manufacturing capability through MVM and
other commercial and acquisition opportunities primarily
in New Zealand and China over time
5. Accelerating the path to profitability for the USA and
MVM businesses.
12
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
“Since announcing its refreshed
growth strategy in 2021, the
Company has gained significant
share in the China IMF market from
4.9% to 7.3%, and achieved strong
growth in Group revenue and EBITDA
of 39% and 90% respectively.”
FY25 Outlook
China IMF market conditions remain challenging and the
Company expects a further market value decline in FY25.
At this stage, the Company is expecting mid single-digit
revenue growth in FY25 versus FY24, with growth affected
by IMF supply constraints which are expected to be resolved
in 1H25.
FY25 gross margin (% of sales) is expected to be broadly
similar to FY24, with 1H25 down (impacted by airfreight)
and 2H25 up compared to prior year.
An increase in brand investment is planned for FY25 with a
similar reinvestment rate (% of sales), and Administrative &
Other expenses are expected to be similar to down compared
to FY24 (% of sales).
The Company expects EBITDA margin (% of revenue) to be
broadly similar to FY24, with 1H25 down and 2H25 up compared
with prior year.
Operational cash conversion is expected to be less than 100%
impacted by the settlement of Synlait FY24 payments withheld
in accordance with contractual arrangements and a reduction
in purchase order deposit payment terms going forward.
Capital expenditure is expected to be approximately
$20 million.
Key risks
In addition to the challenges noted above and trading
upsides and downsides, other risks include, but are
not limited to, challenging macroeconomic conditions,
China IMF category dynamics and competitive intensity,
further supply related risks, 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. For more information on key risks refer to the
Risks and Opportunities section of the Annual Report.
David Bortolussi
Managing Director and Chief Executive Officer
18 August 2024
The a2 Milk Company 2024 Annual Report
13
Building a
sustainable
growth business
14
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 ordinary 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 infants,
children, adults, pregnant women and seniors and other dairy
nutritional products primarily for the China, Australia, New
Zealand 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, adults 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 IMF and Milk Powder sales to customers
in ANZ are ultimately consumed in China.
–
North America: Sales of liquid milk, IMF and other
nutritional products in the United States of America and
liquid milk in Canada.
–
Mataura Valley Milk: Production of nutritional and
ingredients products for a2MC and other external customers
in overseas markets.
WHAT MAKES US UNIQUE
The a2 Milk Company’s purpose is to pioneer the future of Dairy for good with
a vision to create an A1-free world where Dairy nourishes all people and our planet.
BOLD
PASSION
We believe in the power
of the a2™ proposition.
We are pioneers and always
find a way to make it happen.
We are passionate about our
consumers and customers.
OWNERSHIP
AND AGILITY
We align on outcomes and
prioritise initiatives.
We are effective in teams and
do what we say we will do.
We are flexible and act with
a sense of urgency.
LEADING
CONSTRUCTIVELY
We are proud of what we
do and how we do it.
We encourage and develop
ourselves and others.
We are honest, direct and
respectful in our interactions.
DISRUPTIVE
THINKING
We think big, creatively and
logically to maximise impact.
We are better together
and unlock the power
of the collective.
We challenge existing
ways of working to achieve
better solutions.
OUR VALUES
The a2 Milk Company 2024 Annual Report
15
Strategic and distribution partners
Strategic and supply chain partners
Licensee fresh milk
New Zealand
Subsidiary
of Lactalis
Subsidiary
of Mengniu
WHAT WE DO
China and Other Asia
Revenue
$1,143m
EBITDA
$290m
Estimated
market size
NZD$29 billion China IMF market1,2
NZD$1 billion Vietnam IMF market3,4
Supply chain
– China State Farm importation agent
and master distributor
– Over 100 distributors
Our people
144 (headcount)
Product portfolio
Australia and New Zealand
Revenue
$419m
EBITDA
$43m
Estimated
market size
NZD$2.3 billion Dairy Milk market5,6
NZD$0.4 billion Australia IMF market5,7
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
320 (headcount)
Product portfolio
16
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Licensee fresh milk
Canada
1
Assumes RMB to NZD exchange rate of 4.4:1.
2
Source: FY24 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.
3
Assumes USD to NZD exchange rate of 1:1.69.
4 Source: Globaldata.
5
Assumes AUD to NZD exchange rate of 1:1.11.
6 Source: Circana IRI Australia Grocery Weighted.
7
Source: Circana IRI including Grocery and Pharmacy.
8 Source: USA Food FY24 retail milk sales in the Premium Segment.
9 Source: SPINS data for IMF sales.
North America
Revenue
$114m
EBITDA
($15m)
Estimated
market size
NZD$4.4 billion premium
liquid milk segment3,8
NZD$10 billion USA IMF market9
Supply chain
– Three third-party processing
relationships
– 9 farmer suppliers
– IMF sourced from New Zealand
Our people
24 (headcount)
Product portfolio
The a2 Milk Company 2024 Annual Report
17
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-type 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.
Purpose
We pioneer
the future of
Dairy for good
Vision
An A1-free world
where Dairy
nourishes all
people and our
planet
Our growth strategy
Page 20
HOW WE CREATE VALUE
18
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
People
Create a safe, diverse, inclusive
and engaging place for our people
to thrive, support our farmers and
contribute to our communities.
Page 24
Planet
Protect our planet and cows,
rethink packaging, achieve net
zero and become nature positive.
Page 34
Consumers
Bring the unique benefits of pure
and natural a2 Milk™ to as many
consumers as possible.
Page 44
Shareholders
Create long-term, enduring value
for shareholders and maintain a
trusted, transparent relationship.
Page 50
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
Values
– Bold passion
– Ownership and agility
– Leading constructively
– Disruptive thinking
The supply of
nutritional food
products
Competitive
intensity
Doing business
in international
markets
Major
international
events
Climate and
nature
Strategic
partnerships
Evolving
technology and
cyber security
Talent and
culture
Social licence
to operate
Risks and
opportunities
Page 54
Page 55
Page 56
Page 57
Page 58
Page 59
Page 60
Page 61
Page 62
Page 63
The a2 Milk Company 2024 Annual Report
19
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: Critical to the
Company achieving its commercial objectives 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. In addition to its people, the Company has
elevated investment in planet leadership to sit amongst its
top strategic priorities, focusing on taking direct action and
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: Growing share in the
China IMF market remains the Company’s most significant
commercial opportunity.
The Company is particularly focused on share gain in key
accounts, lower tier cities and online channels. Critical to
increasing share will be ongoing brand investment, which
the Company leverages across its English label and China
label IMF product portfolios.
–
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 in both China label and
English label IMF, as well as leveraging its brand strength
to develop into other product categories for kids, adults
and seniors. Opportunity also exists for the Company in
leveraging existing products into new 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 China label IMF registrations,
developing nutritional manufacturing capability, leveraging
capacity at Mataura Valley Milk Limited (MVM), as well as
pursuing other investment opportunities and commercial
partnerships. Over time, the Company will also seek to
develop its domestic supply chain capability in China.
–
Accelerate path to profitability: 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 by FY27.
OUR GROWTH STRATEGY
Purpose
We pioneer the future of Dairy for good
Vision
An A1-free world where Dairy nourishes all people and our planet
Goals
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 maintain a trusted,
transparent relationship
Strategic
priorities
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
– Increase share in key
accounts, expand in
lower tier cities and
further accelerate
online growth
– Invest in brand
strength and leverage
across two labels and
wider portfolio
Ramp-up product
innovation
– Expand EL and CL IMF
product portfolios
– Develop other
nutritionals for kids,
adults and seniors
– Leverage IMF and
other products into
new markets
– Innovate in liquid milk
Transform our
supply chain
– Expand CL market
access through MVM
and other investment
opportunities,
primarily in NZ and
China over time
– Develop supply
capability to enable
innovation
Accelerate path
to profitability
– Improve USA liquid
milk losses and invest
in development of IMF
opportunity
– Increase MVM A1-free
milk pool, nutritional
capability, utilisation
and efficiency
Enablers
Quality & service
Brand strength
Science & innovation
Strategic relationships
Values
Bold passion
Ownership & agility
Leading constructively
Disruptive thinking
B
O
L
D
20
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Financial measures of success
In October 2021, as part of its refreshed growth strategy, a2MC
defined its medium-term financial ambition (i.e. by FY26 or
later) to grow revenue from $1.2 billion in FY21 to ~$2 billion
and to target EBITDA margins in the ‘teens’. Since FY21, the
Company’s execution of its growth strategy has been in line
with its expectations, and it is well positioned to achieve
future growth, despite the China IMF market having contracted
significantly more than expected at the time it set its ambition.
The Company announced on 19 February 2024 as part of its
FY24 Interim Results that whilst it remains possible for the
Company to achieve its medium-term revenue ambition of
~$2 billion by FY26, at this stage it is likely to be achieved
by FY27 or later. The Company continues to target EBITDA
margins in the ‘teens’ with year-on-year improvement.
Since announcing its refreshed growth strategy in 2021, a2MC
has gained significant share in the China IMF market and
achieved strong growth in Group revenue and EBITDA from
FY21 to FY24 of 38.8% and 89.9% respectively. a2MC has grown
its China label IMF sales 57.1% during this period and stabilised
its English label IMF sales, which were up 4.4%. The Company
has increased its share of the total China IMF market from
4.7% in FY21 to 7.3% in FY24, becoming one of the most
successful brands in China and in the top-5 overall.
The key drivers for further sales growth are:
–
Increasing share of CL and EL IMF through portfolio
expansion and targeting growth in lower tier cities and
online channels
–
Growing other dairy and nutritional products in China
through innovation and distribution growth
–
Growing in existing and new emerging markets outside
of China (e.g. South East Asia)
–
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
–
How the competitive landscape will evolve in China,
including following the market-wide transition to the new
GB standard that was mostly completed in FY24
–
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
–
Inflationary pressures impacting operating costs and
introducing cost-of-living pressures for consumers globally
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.
Non-financial measures of success
The Company is also focused on several medium-term non-
financial measures of success, as summarised in the table on
the following page.
People: The Company is committed to promoting a safe,
diverse, inclusive and engaging 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 7 for its safety total recordable injury
frequency rate (TRIFR) with continuous improvement,
improving its employee engagement score to above 80%,
maintaining its diversity and inclusion rating and reducing the
Company’s gender pay gap by at least 2ppts per annum.
Planet: The Company is committed to minimising its impact on
the planet and becoming a more sustainable business across a
broad range of areas. For on-farm and other impact areas, this
includes maintaining 100% of certified farms supplying raw A1
protein free milk having certified farm environmental plans and
upgraded animal welfare programmes.
On emissions, the Company seeks to make meaningful progress
each year towards its target of net zero emissions for Scope
1 and 2 by 2030 and for Scope 3 by 2040, and a reduction in
Scope 3 emissions of 30% (per kilogram of milks solids) by
2030, from a FY21 base year. The Company also seeks to make
meaningful progress each year against its target of 100%
reusable, recyclable or compostable packaging with 50%
average recycled content.
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 3% 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 15% 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.
The a2 Milk Company 2024 Annual Report
21
PLANET
Page 34
CONSUMERS
Page 44
SHAREHOLDERS
Page 50
Medium-term measures of success
GOALS
PEOPLE
Page 24
Brand Health
Page 45
Market Share
Page 45
Innovation
Page 45
Supply Chain
Page 45
1
Safety
Engagement
Diversity
and
inclusion
Gender
pay gap
GHG emissions
reduction
Farm
environmental
plans
Animal welfare
programmes
Sustainable
packaging
China brand
health
AU
household
penetration
USA
household
penetration
MBS share
DOL share
CBEC share
O2O + Daigou
share
Australian
fresh milk
share
USA premium
milk share
China other
nutritionals
growth
Emerging
markets
development
USA sales
from new
products
ANZ sales
from new
products
Access
to ≥3 CL
registrations
CL inventory
management
EL inventory
management
Quality and
service
Supply chain
efficiency
Sales
ambition
of ~$2.0b
(≥FY27)
EBITDA
margin
ambition in
the ‘teens’
targeting
year-on-year
improvement
USA
profitability
by FY27
MVM
profitability
by FY27
2
3
4
5
6
7
On track
Work in progress
22
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 acknowledges recent developments in this
space, particularly its alignment with New Zealand Climate
Standards (NZ CS 1, NZ CS 2, and NZ CS 3).
These standards were published by the Aotearoa New
Zealand Climate Standards External Reporting Board (XRB)
in December 2022. This report has also been prepared with
reference to the International Sustainability Standards Board
(ISSB) and considers the principles of integrated reporting.
During FY24 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 expectations of its stakeholders.
The assessment included 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).
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 FY24, the Company has
received reasonable assurance for Scope 1 and 2 emissions and
limited assurance for many of the key non-financial metrics
included in this report.
For further information, please see the ESG assurance report
on page 85 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.
OUR REPORTING APPROACH
The Company aims to enhance its reporting, providing
stakeholders with a more comprehensive view of its
ongoing efforts to create and preserve long-term value.
The a2 Milk Company 2024 Annual Report
23
Progress towards our goals – People
PEOPLE
Create a safe, diverse,
inclusive and engaging
place for our people
to thrive, support our
farmers and contribute
to our communities.
SDG 5: Gender equality
Target 5.5
SDG 8: Decent work
and economic growth
Target 8.2
SUSTAINABLE DEVELOPMENT GOALS
Company disclosures
Financial statements
Corporate governance
Building a sustainable growth business
CEO’s year in review
Chair’s letter
24
Passionate and thriving team
The Company is committed to upholding a safe, 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.
During FY24, 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.
FY24 PROGRESS
Health, safety and wellbeing
–
Continued to focus on managing critical risks and promoting a
safety culture through leadership and education across all sites,
including the use of external resources where appropriate.
–
Reported a Total Recordable Injury Frequency Rate (TRIFR) of 6.2,
(compared to 6.1 at the same time last year). This included team
members from all of the Company’s sites (including contractors).
–
Provided mandatory workplace behaviour training.
–
Continued to provide Employee Assistance Programme
resources to team members across all geographies.
–
Further developed health and safety reporting.
–
Continued to offer a Global Wellbeing Day.
–
Launched Mental Health Awareness Training for people leaders.
–
Expanded the Company’s Headspace subscription benefit to include
company-paid membership for family and household members.
SAFETY
<7 TRIFR
with continuous improvement
FY24: 6.2
FY23: 6.1
ENGAGEMENT
>80%
Company-wide engagement survey
March 2024: 72%
October 2023: 69%
DIVERSITY AND INCLUSION
Rated >4
out of 5 Diversity and inclusion
question in engagement survey
FY24: Above 4 out of 5
FY23: Above 4 out of 5
GENDER PAY GAP
At least 2ppts
reduction per annum in global
gender pay gap
FY24: Decrease by 4ppts
to 32.7%
MEDIUM-TERM
PEOPLE TARGETS
PEOPLE SECTION
Passionate and thriving team P25
Gender pay gap equality
P28
Human rights
P30
Enriching communities
P31
The a2 Milk Company 2024 Annual Report
25
Investment in leadership
–
Delivered rewards training to all senior leaders globally to
enhance pay transparency across each of our regions.
–
Embedded the Lifestyles Inventory (LSI) tool to provide
a common leadership language and support the
development of leadership capability and effectiveness.
–
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.
–
Launched a2 Sales Business School in China.
–
Hosted all senior leaders in New Zealand at the annual Senior
Leader’s Conference to align on strategic priorities and
execution plans for FY25 and share learning, opportunities
and achievements.
Reward, recognition and training
–
Partnered with a global consulting firm to undergo an
independent job evaluation process for all roles globally.
–
Launched a new global system-based performance review
process, with enhanced leader and team member support
for each step of the annual ‘impact and development’ cycle.
–
Celebrated and recognised monthly nominees for the
a2 Legends awards acknowledging individuals and teams who
demonstrate company values and outstanding contribution
towards achievement of Company strategic priorities.
–
Recognised the overall winner of the annual a2 Legend of
the Year award and four recipients of the annual B O L D
values awards.
–
Continue to offer a Work from Anywhere policy, to support
all team members with leveraging additional flexible work
arrangements.
Recruitment
–
Embedded talent acquisition partnership with an external
provider as an integrated talent function in the ANZ business.
–
Updated Human Resources Information System (HRIS)
providing global data and reporting.
–
Evolved the operating model and organisational design to
optimise delivery of our strategic objectives.
–
Launched an online recruitment module at MVM and in the
China market to support a better candidate experience.
–
Invested in talent acquisition of product development and
innovation skills, specifically in China and Supply Chain
teams, to strengthen internal capability to deliver on
Company growth objectives.
–
Launched the Company’s corporate induction programme
in China.
Supporting a diverse and inclusive workplace
–
Introduced gender neutral parental leave and enhanced
paid parental leave policy to 20 weeks.
–
Launched Grandparents Leave, providing five days of
paid leave for the arrival of a new family member.
–
Implemented eight weeks of additional paid parental leave
for multiple births (e.g. twins, triplets).
–
Enhanced domestic violence/family violence policy to
include provision of pre-paid SIM card and emergency
accommodation assistance.
–
Delivered unconscious bias training.
–
Provided team members access to the Genea fertility
programme in Australia, which offers education, webinars,
podcast and complimentary/bulk billed health assessments.
–
Continued to offer an additional five days of paid women’s
health leave.
–
Partnered with an external provider to deliver a Menopause
at Work education session, providing an overview on what
is menopause and what are the symptoms, how it impacts
work and tips and guidance for navigating respectful
conversations about menopause in the workplace.
–
Continued to offer an online platform to support team
members managing childcare and tutoring in New Zealand
and Australia.
–
Continued to partner with Parents at Work, an external
provider supporting all team members in the areas of career,
carer responsibilities, family and wellbeing.
–
Gender pay gap has been embedded into the Company’s
scorecard as a key performance indicator.
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
future talent.
–
Implement a new global online Workplace Health and
Safety Management System.
–
Implement ‘B O L D leadership programme’ focusing on
‘leading self’ and ‘leading others’.
–
Launch enhanced Domestic and Family Violence policy,
dedicated intranet page, internal resources and education
and awareness learning module.
Progress towards our goals – People (continued)
26
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Key metrics data
Gender (as at 30 June 2024)
Cohort
Male
%3
Female
%3
Variance to
last year3
(% of females)
Directors1
6
3
50%
3
50%
7%
Executive Leadership Team1
10
7
70%
3
30%
0%
People Leaders2
122
67
55%
55
45%
-1%
Remaining Team Members
351
165
47%
186
53%
0%
Total
488
241
49%
247
51%
0%
Age (as at 30 June 2024)
Number
%3
Variance to last year (%)3
Under 30
61
13%
1%
30 to 50
316
65%
-2%
Over 50
111
23%
2%
Total
488
100%
Tenure (as at 30 June 2024)
Number
%3
Variance to last year (%)3
0–2 Years
200
41%
-6%
2–5 Years
172
35%
-6%
5+ Years
116
24%
12%
Total
488
100%
1
David Bortolussi has been included in both the Director and ELT calculation.
2
People Leaders are defined as any Team Member with direct reports.
3
All values subject to rounding.
The a2 Milk Company 2024 Annual Report
27
Progress towards our goals – People (continued)
Our ongoing commitment to Gender Pay Equality
The Company has confidence in its policies, benefits and practices that support and
promote gender equality. It adopts a holistic approach to diversity and inclusion in the
workplace driven by a strong belief that it drives better business outcomes and provides
a better experience for team members.
The Company is proud to have 50% representation of women
at the board level including its Chair. The Executive Leadership
Team (ELT) has 30% women and management continues to
work towards the goal of having at least 40% representation
of men and women across all levels in the organisation. The
Company acknowledges that it still has work to do in achieving
this objective and to significantly reduce its gender pay
gap over time.
a2MC has a gender neutral approach to pay across the
organisation and upholds equal pay as a core component of its
remuneration policy and compliance in the markets in which
it operates.
Focus areas to support Gender Pay Equality
The Company has prioritised three key areas to support its
gender pay equality objectives.
1. Talent Acquisition
Inclusion and diversity are areas of continued focus in the
attraction, development and retention of talent. a2MC has
taken various initiatives to improve outcomes in this area,
including:
–
All roles are advertised internally to widen the pool of
candidates and to provide development opportunities to
existing team members.
–
Specialised external software is used to attract diverse
candidates through gender neutral language in role
advertisements reducing gender bias in talent attraction.
–
Talent acquisition teams are required to provide gender
balanced candidate short lists.
–
For higher graded appointments, the Company ensures it
has a gender balanced interview panel with a senior female
executive.
–
Unconscious Bias training is provided to all hiring leaders
to reduce unintended bias in the recruitment process.
–
Talent management processes ensure that gender balance
is a consideration.
–
The CEO and Chief People & Culture Officer review all senior
leadership appointments to ensure that a gender neutral
approach has been adopted.
2. Flexible and supportive Work Practices
All team members have access to flexible work and the
Company supports a hybrid work approach. The Company
believes that flexible working practices for parents and carers
is of particular importance. The Company also believes that
providing access to paid parental leave promotes wellbeing
benefits for families and the community more broadly. Many
new benefits have been introduced over the past couple of
years including:
–
Enhanced parental leave policy to 20 weeks.
–
Gender neutral parental leave, providing all permanent
employees (of any gender) who are welcoming the arrival
of a child to their family through pregnancy, adoption,
surrogacy, fostering or kinship arrangement, with 20 weeks
paid leave with no qualifying period and removal of the
primary and secondary carer labels. Gender neutral parental
leave is an important part of the Company’s approach to
gender equality in the workplace and helping take gender
bias out of parental leave.
–
Multiple newborns parental leave (eight weeks additional
paid leave).
–
Grandparents leave for the arrival of a new family member
(five days additional paid leave).
–
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 (five days additional paid leave).
3. Remuneration framework
a2MC continues to undertake regular independent salary
reviews and equal pay validation. Over the past year the
Company engaged global consulting firm Korn Ferry to lead
an independent and extensive job grading process for all roles
in Australia across all job grades. The Korn Ferry Hay Group
Guide Chart-Profile Method of Job Evaluation is the most
widely accepted method worldwide. The Company utilises this
methodology annually during the annual salary review process
and ad-hoc reviews to verify job grades, market data and equal
pay. The Company has a long-standing partnership with Korn
Ferry, utilising their expertise to regularly review remuneration
ranges, benchmarking and job matching.
28
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Gender Pay Gap calculations
While we have made progress in reducing our gender pay gap
from 2023 to 2024, the current gender pay gap indicates that
there is more that the Company can do. In February 2024,
the Company welcomed the publication of Australian gender
pay gaps by the Workplace Gender Equality Agency (WGEA)
Australia. Advancing gender equality across all workplaces and
global markets is consistent with a2MC’s values, policies and
commitment to equal pay and gender diversity.
Global Gender Pay Gap1
FY242
FY232
Base salary
Average
20.8%
28.2%
Median
11.8%
17.1%
Total
remuneration
Average
32.7%
36.7%
Median
11.0%
22.2%
1
WGEA methodology used to calculate gender pay gap based on data
as at 31 March of each year.
2
a2MC engaged an independent accounting firm to assist with the
calculations based on a data set provided by the Company.
The gender pay gap is mainly due to fewer females in higher
graded roles and a lower proportion of men in lower graded
roles. A more balanced distribution of men and women at
all levels of the organisation will be needed to narrow and
ultimately eliminate the gap.
Australian Gender Pay Gap1
FY242
FY232
Base salary
Average
26.6%
36.0%
Median
19.9%
43.8%
Total
remuneration
Average
40.8%
46.6%
Median
21.2%
44.7%
1
WGEA methodology used to calculate gender pay gap based on data
as at 31 March of each year. 171 and 166 employees as at 31 March 2023
and 31 March 2024 respectively in line with WGEA reporting dates.
2
a2MC engaged an independent accounting firm to assist with the
calculations based on a data set provided by the Company.
Due to the relatively low number of total employees in
Australia, the gender pay gap calculations are sensitive
to small movements. Notwithstanding, the Company is
determined to make a difference in Australia and globally and
has included a continuous improvement goal in the Group
performance scorecard.
Whilst gender pay gap is an important insight into gender
equality at a point in time, it does not provide a complete
picture of a2MC’s commitment to it. The Company is proud
of its approach to diversity and inclusion, has market-leading
policies and is committed to continuous improvement in
closing its legacy gender pay gap and will continue to create a
great place to work that provides accessible opportunities for
all our team members to thrive.
The a2 Milk Company 2024 Annual Report
29
Human rights
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.
Anti-Modern Slavery
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
fourth Modern Slavery Statement under the Australian Modern
Slavery Act in December 2023 which is available at
www.thea2milkcompany.com/ESG-reporting.
FY24 PROGRESS
–
Revised employment model implemented by third-party
distributors for China-based full-time brand ambassadors to
provide social insurance and full-time employment benefits,
and reduce risk of exploitation.
–
Online Modern Slavery Training module rolled out to all
employees globally, and targeted training provided to team
members working in key risk areas (procurement, farms
services and manufacturing).
–
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.
–
Launched an anti-modern slavery supplier questionnaire,
with initial rollout to highest risk suppliers following
completion of supplier risk analysis.
–
Updated farmer handbook for MVM milk suppliers with
further information about the Company’s expectations
regarding employment practices and modern slavery.
–
Engaged a consultancy to conduct a refreshed risk
assessment and a gaps and opportunities analysis to
support longer term action planning.
–
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.
NEXT STEPS
–
Develop longer-term action plan following completion
of gaps and opportunities analysis.
–
Analyse modern slavery risks with key suppliers’
supply chains and operations.
–
Continue roll-out of anti-modern slavery supplier
questionnaire.
Promoting diversity and inclusion
As a diverse business with operations across four different
countries, the Company recognises the importance of fostering
a culture that promotes a respectful and diverse workplace.
Inclusion plan (NZ)
In New Zealand, the Company commenced its Māori cultural
journey, partnering with Tika Learning who delivered the
first of the cultural awareness and education sessions at the
Company’s Global Senior Leader’s Conference in June.
Reconciliation Action Plan (AU)
In Australia, the Company recognises the importance
of reconciliation between First Nations peoples and non-
indigenous peoples and in FY23 formally commenced its
reconciliation journey by committing to the Reconciliation
Action Plan (RAP) framework established
by Reconciliation Australia.
FY24 PROGRESS
–
Commenced work towards establishing the Company’s
Māori inclusion plan in New Zealand.
–
Established RAP working group across Australia.
–
In Australia progressed deliverables against the Company’s
‘Reflect’ RAP in partnership with YarnnUp, an Aboriginal
advisory firm.
NEXT STEPS
–
Roll out Māori culture education.
–
In Australia, commence development of ‘Innovate’ RAP.
Progress towards our goals – People (continued)
30
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 by 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.
FY24 PROGRESS
$2.97m1
in product and cash donations, including:
Proactive partner organisation support
–
KidsCan (New Zealand).
–
Foodbank School Breakfast Program (Australia).
–
Feed the Children (USA).
–
Operation Smile (China).
–
Cure Kids (New Zealand).
Event-based (or reactive) support
–
Product donations for families affected
by Gansu earthquake (China).
Additional farming community specific
programmes and support
–
a2™ Farm Sustainability Fund.
–
Surfing for Farmers support.
–
Bale Up Conference support.
–
Dairy Women’s Network support.
1 Donations figure includes the cost value of donated products and any donation of cash (NZD) to communities, organisations, farmers and individuals.
The a2 Milk Company 2024 Annual Report
31
Progress towards our goals – People (continued)
KidsCan (New Zealand)
The Company is proud to partner with KidsCan, a New
Zealand based charity dedicated to helping children affected
by poverty.
a2MC is a major partner of KidsCan which helps to support
children experiencing hardship by providing food, jackets,
shoes and basic health products in partnership with schools
and early childhood centres nationwide.
The Company supports KidsCan’s belief that education is
a child’s ticket out of poverty. Recognising that children
struggle to learn when they are cold or hungry and providing
practical support can help to remove some of these barriers,
creating an opportunity for a better future.
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. While corrective
surgery can help to transform those children’s
lives, 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.
32
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Cure Kids (New Zealand)
Cure Kids is the largest funder of child health research in New
Zealand after the government. The Company was proud to
support Cure Kids Professorial Chair, Andrew Day, in FY20 and
FY21 to research digestive health for children, with a special
focus on coeliac disease and irritable bowel disease. In FY24,
the Company also made a significant donation to Cure Kids’
Elliott Caughey Fund established to recognise the co-founders
of Cure Kids, emeritus Sir Bob Elliott and Dr Ron Caughey. This
contribution extends the Company’s longstanding support of
Cure Kids and will further enable crucial child health research.
Feed the Children (USA)
The Company partnered with Feed the Children in Colorado to
help provide struggling families the supplies they need to send
their children back to school with confidence. The ongoing
health and economic crisis continues to cause hardships for
children and their families and it’s estimated that one in five
children in the USA suffer from food insecurity. In FY24, the
Company donated funds to provide food and supplies for
school children, ensuring they have what they need to grow
and 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 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. In FY24 the Company was able to
support Foodbank through continued donations to provide
over 49 schools in some of Australia’s most remote Indigenous
communities with access to the School Breakfast Program.
The a2 Milk Company 2024 Annual Report
33
PLANET
Protect our planet and
cows, rethink packaging,
achieve net zero and
become nature positive.
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
Progress towards our goals – Planet
Company disclosures
Financial statements
Corporate governance
Building a sustainable growth business
CEO’s year in review
Chair’s letter
34
Nature
As global understanding of nature-related impacts and
dependencies deepens, businesses are increasingly
recognising the critical role that nature plays in their
operations.
Within the agricultural sector, understanding the interconnected relationship
between nature, climate, and supply chain impacts, especially on-farm impacts,
is essential to effectively contributing to a sustainable future.
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.
The dairy sector has an extraordinary opportunity to lower its impact on the
natural environment. The Company recognises the interconnected nature
of these impacts and 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 the
Taskforce on Nature-related Financial Disclosures (TNFD) over time.
The Company has undertaken 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 pilot assessments confirmed the need for the Company, with its strategic
partners and suppliers, to focus on the key risks and opportunities around:
–
Water quality and use
–
Soil quality
–
Biodiversity
–
Climate (as an element of nature)
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 aligned to its primary IMF
manufacturer on nitrogen loss targets, an initial step towards introducing
nature-related targets. The Company is targeting a 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 primary IMF manufacturer, from
a FY18 base year. 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.
PLANET SECTION
Nature
P35
Climate
P37
Thriving farms
P40
Sustainable packaging
P42
SUSTAINABLE PACKAGING
Meaningful progress against
sustainable
packaging
roadmap
FY24: Increased recycled content
in tertiary packaging and adopted
the ARL on fresh milk bottles in
Australia
GHG EMISSIONS
Meaningful progress against
Net Zero roadmap
FY24: 45% reduction in
Scope 1 & 21 emissions and
completion of methane inhibitor
feasibility study
MEDIUM-TERM
PLANET TARGETS
ANIMAL WELFARE AND FARM
ENVIRONMENTAL PLANS
100%
of certified farms supplying
raw A1 protein free milk to
have an upgraded animal
welfare programme and a farm
environmental plan in place by
the end of CY23
FY24: achieved target
1 Using the market based method of
calculation for Scope 2.
The a2 Milk Company 2024 Annual Report
35
Investing in planet leadership
Climate
30% reduction in Scope 3
emissions, on an intensity
basis by 2030
Scope 1 and 2 net zero by 2030
Scope 3 net zero by 2040
Thriving farms
100% of certified farms
supplying raw A1 protein
free milk to have an
upgraded animal welfare
programme and a farm
environmental plan in place
Sustainable
packaging
100% reusable, recyclable,
or compostable packaging
Drive packaging recovery
through consumer education
50% average recycled content
included in packaging
Phase out of problematic
and unnecessary single-use
plastics packaging
Protect our
planet and cows
Programmes and
services to engage
with and support
farmers
Achieve Net
Zero
Reducing emissions
along the value chain
Rethinking
packaging
Enhancing recyclable
and reusable
packaging, while
increasing the use of
recycled materials
Contribute to
nature positive
Enhancing soil,
water quality and
biodiversity health
Collaborating with partners, processors, farmers and communities
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
DRIVING TOWARDS
a2MC’S PLANET
TARGETS AND
COMMITMENTS
FY24 PROGRESS
–
Achieved the Company’s target of 100% of certified
farms supplying raw A1 protein free milk to have a farm
environmental plan in place by end of CY23.
–
Advanced on-farm research in partnership with Lincoln
University, designed to strengthen on-farm resilience and
deliver positive environmental outcomes.
NEXT STEPS
–
Continue progress towards aligning to and reporting against
the TNFD framework.
–
Consider on-farm water, waste and biodiversity targets.
–
Extend nature-related targets for other key risks and
opportunities and for additional operating regions.
Progress towards our goals – Planet (continued)
36
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 chain, including a
particular focus on on-farm emissions.
The Company has continued to evolve its alignment to external reporting
requirements and in FY24 has aligned with the Aotearoa New Zealand XRB Climate
Standards, as required (NZ CS 1, CS 2 and CS 3). In addition to XRB alignment,
the Company remains attuned to global sustainability efforts. The International
Sustainability Standards Board (ISSB) has been instrumental in shaping the landscape
of sustainability disclosures. Furthermore, the Australian Accounting Standards Board
(AASB) has released an exposure draft on climate reporting, proposing the Australian
Sustainability Reporting Standards (ASRS).
GHG emissions net zero roadmap and GHG inventory
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.
The Company has continued to track against its net zero roadmap which illustrates
the Company’s net zero targets and how it plans to meet these targets over time.
The Company’s net zero roadmap is available on the Company’s website.
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 in the Company’s Climate Statement at
thea2milkcompany.com/ESG-reporting.
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
CLIMATE TARGETS AND
COMMITMENTS
The a2 Milk Company 2024 Annual Report
37
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.
Key metrics data (FY24)1
GHG Emissions2
FY24
FY23
FY22
Total GHG Emissions3
453,953
501,090
516,345
Scope 1
13,412
24,343
22,972
Scope 2 (Market based)4
149
153
–
Scope 2 (Location based)4
4,507
3,356
3,221
Total Scope 3
440,392
476,595
490,153
On-farm (Scope 3)
360,919
374,168
403,429
1
Numbers are subject to rounding.
2
Greenhouse gas emissions, calculated as tonnes of carbon dioxide
equivalent (tCO2e), 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 New Zealand Ministry for the Environment for New Zealand
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 the Company’s Scope 1, 2 and 3 emissions. Total emissions
calculations exclude packaging and non-milk raw ingredients.
Refer to the Company’s GHG inventory report for details on estimations
and assumptions used, which can be found in the Company’s Climate
Statement.
3
Total GHG emissions 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.
FY24 PROGRESS
Scope 1: GHG emissions from direct operations
–
Completed the installation of a high-pressure
electrode boiler at MVM to replace existing coal-
fired thermal heat generation system.
–
Introduced electric vehicles to the Company’s fleet
vehicles, with remaining vehicles being hybrid.
Scope 2: GHG emissions from electricity operations
–
Completed the full electrification of the MVM site
which includes converting MVM to 100% certified
renewable energy.*
–
Continued to utilise green energy contracts at all
available sites.
Scope 3: Indirect GHG emissions
–
Invested in AgriZeroNZ, a partnership between
the New Zealand Government and major
agribusiness companies to reduce on-farm biogenic
methane and nitrous oxide emissions.
–
Completed the Company’s first methane
inhibitor feasibility study on-farm.
–
Continued research to support regenerative farming
practices through the partnership with Lincoln
University aimed at reducing GHG emissions.
Progress towards our goals – Planet (continued)
Mataura Valley Milk boiler upgrade
The new electric boiler installed at MVM in Southland is now fully operational, completing the plant’s conversion from
a coal-fired manufacturing process to one powered entirely by certified renewable electricity.* The boiler conversion
eliminates about 22,000 tonnes of CO2, which contributes to approximately 98% of the Company’s Scope 1 emissions on an
annual basis and establishes MVM as the first all-electric dairy factory in New Zealand.
The Company invested approximately $16 million into the boiler and site electrification project and received $5 million
co-investment from Energy Efficiency and Conservation Authority under the New Zealand’s Government Investment in
Decarbonising Industry fund.
*
MVM purchases Meridian’s Certified Renewable Energy production values product to enable it to exclusively match the amount of electricity it uses
on an annual basis with an equivalent amount of electricity put into the national grid from one of Meridian’s hydro stations or wind farms (which have
been independently verified as producing 100% renewable electricity). Actual electricity received on location is from mixed renewable and fossil fuel
sources, due to the nature of the electricity transmission and distribution system.
38
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
AgriZeroNZ
In FY24 the Company made an investment into AgriZeroNZ,
a world-first partnership between the New Zealand
Government and other industry stakeholders aimed at
reducing enteric methane and nitrous oxide emissions.
The investment demonstrates the Company’s
commitment to supporting farmers to reduce on-farm
GHG emissions in New Zealand, and in meeting its
sustainability targets of becoming net zero by 2040 and
its interim target of reducing Scope 3 emissions by 30%,
on an intensity basis, by 2030.
Mitigating on-farm emissions presents a significant
challenge for the dairy industry and transitioning
to a lower-emissions future requires a systematic
change involving substantial investments in innovative
technologies and emission reduction strategies. Within
its supply chain, on-farm emissions account for roughly
75% of the Company’s total GHG emissions profile and
through investments such as AgriZeroNZ combined with
other on-farm initiatives, the Company aims to drive
meaningful change across the agricultural sector to
support farmers and achieve its net zero targets.
Methane reduction
The Company has continued to focus on methane
reduction with the completion of its first feasibility
study in FY24. The study presented various challenges
throughout the period, providing opportunities for the
Company to work with farmers to navigate on-farm
hurdles to find solutions that are commercially viable and
outcomes that can be validated. This included investing
in on-farm infrastructure, methane emission data capture
software, animal health monitoring collars and providing
additional support where needed. The Company will
need to continue to work with farmers, processors and
feed suppliers to identify a range of methane reduction
products that are easily accessible, ensure animal
welfare, maintain the premium quality of products and
reduce Scope 3 emissions.
Environmental metrics
Metric
FY24
FY23
Movement
Manufacturing Facilities1
Total water usage (‘000 litres)
314,071
290,908
8%
Water efficiency (litres/litre of milk)
1.6
1.7
-6%
Waste water diverted to beneficial land application (litres)
1,133,900
2,780,010
-59%
Waste to landfill (tonnes)
68
100
-32%
Recycling waste (tonnes)
1,225
2,683
-54%
Total waste (tonnes)
1,294
2,776
-53%
Waste diversion (recycled waste/total waste)
94.7%
96.7%
-2%
Electricity consumption (kWh)2
17,400,000
16,700,000
4%
Electricity consumption – electrode boiler (kWh)2
25,300,000
–
100%
Total electricity consumption (kWh)2
42,600,000
16,700,000
155%
1
The table refers to operations at Smeaton Grange and MVM only.
2
This number has been rounded.
FY24 PROGRESS
Water usage and efficiency
–
Water efficiency remains a priority for the Company’s
manufacturing facilities. Water usage is strongly
influenced by the product mix and given the changing
product mix at MVM, an increase in water usage is
expected, with water efficiency rates continuing to
align with prior years.
Waste, wastewater and waste diversion
–
Waste reduction remains a top priority for both
MVM and Smeaton Grange. This commitment is
demonstrated in the overall decrease in landfill
waste and total waste. Due to MVM’s location,
traditional recycling methods are not always feasible.
In FY24 MVM implemented alternative recycling
solutions for waste materials which resulted in a 53%
reduction in overall waste and a 54% reduction in
recycling waste between FY23 and FY24.
–
Wastewater diverted to beneficial land use
significantly decreased in FY24. This reduction is
attributed to a modification in the sludge treatment
process at MVM. Instead of being diverted back into
the land, the sludge is now repurposed into compost.
Energy consumption
–
MVM and Smeaton Grange have continued to use
green energy contracts, with Smeaton Grange
producing energy through solar panels.
–
In line with expectations, electricity at MVM
increased in FY24 due to the introduction of the
electrode boiler. The boiler utilises renewable energy
and will reduce the Company’s Scope 1 emissions by
approximately 98% in FY25.
The a2 Milk Company 2024 Annual Report
39
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.
The Company is committed to working with and supporting farmers enabling 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.
In FY24, the Company achieved its targets of 100% of certified farms supplying raw
A1 protein free milk to have a farm environmental plan in place and to be certified
under an upgraded animal welfare programme by the end of CY23. The Company
has continued to track and develop the roadmap to certification of supplier farms
to continue to meet this target.
The Company has developed and rolled out its farmer grants programmes, on-farm
measurement pilot studies, research partnerships, methane reduction 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
FY24 PROGRESS
–
Achieved the Company’s target of 100% of certified farms supplying raw A1 protein
free milk to have a farm environmental plan in place by end of CY23.
Animal welfare programme
Cow welfare is crucial for dairy production, and benefits both the animals and milk
production. High standards of cow welfare results in reduced stress, lower disease
risk, and improved overall wellbeing; leading to more productive, ethical and efficient
farming.
Best practice standards for animal welfare on farms is therefore central to the
responsible sourcing of A1 protein free milk, and the Company works with its suppliers
to support best practice though its animal welfare programme.
Progress towards our goals – Planet (continued)
100%
of certified farms supplying
raw A1 protein free milk to
have an upgraded animal
welfare programme and a farm
environmental plan in place by
the end of CY23
THRIVING FARMS TARGETS
AND COMMITMENTS
40
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
The programme meets globally recognised frameworks,
including the Five Domains Framework, which considers
both physical and mental aspects of wellbeing:
1. Nutrition
2. Physical Environment
3. Health
4. Behaviour
5. Mental or Affective State
a2MC supports farmers to implement its animal welfare
programme through training, milk monitoring, and
comprehensive audits. The Company encourages a continuous
improvement approach, supporting farmers to have best
practice standards for animal welfare through the upgraded
animal welfare programme.
FY24 PROGRESS
–
Achieved the Company’s target of 100% of certified farms
supplying raw A1 protein free milk to have an upgraded
animal welfare programme and a farm environmental plan
in place by the end of CY23.
–
Continued roll-out of training modules for auditors.
–
Staged launch of upgraded animal welfare programme
across the Company’s regions.
–
Successful roll-out of updated audit scope.
NEXT STEPS
–
Progress towards global certification of the redefined
animal welfare programme.
–
Invest in education and value-add initiatives for farmers.
Research studies, partnerships and
measurement
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. As noted in the
Climate section above, the Company has been actively involved
in methane reduction 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 is where the Company is investing time and resources
to advance the accurate measurement of on-farm data.
FY24 PROGRESS
–
Completed first methane inhibitor feasibility
study in Victoria, Australia.
–
Rolled out on-farm carbon audits across its certified farms.
–
Progressed a research project with Lincoln
University aiming to enhance on-farm resilience
and deliver positive environmental outcomes.
NEXT STEPS
–
Expand on completed methane reduction feasibility study
in Australia.
–
Expand on measurement pilot studies in Australia and
New Zealand.
–
Expand carbon audits to certified farms in North America.
–
Continue to partner with research institutions on projects
that will advance science and technology solutions to
contribute to nature positive outcomes.
a2TM Farm Sustainability Fund
In FY24 the Company consolidated its farmer grants
programmes across New Zealand and Australia bringing them
together under the re-branded a2TM Farm Sustainability
Fund. Since its inception, the New Zealand and Australian
programmes have awarded over 65 projects, totaling more
than $2,170,000.
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 Company has partnered with specialist agriculture
organisations across New Zealand and Australia, Lincoln
University and Landcare Australia respectively, to administer
the fund and support the assessment and progress of projects.
The programme allows eligible 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
–
Improving 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
comprised of industry experts in regenerative agriculture, soil
health, animal health and wellbeing and farming systems who
evaluate and award funding for the received applications.
FY24 PROGRESS
Twenty-five awards totalling approximately $670,000 made
across New Zealand and Australia to farmers who were
successful in the 2024 round of the a2™ Farm Sustainability
Fund.
NEXT STEPS
–
Continue to support the a2™ Farm Sustainability Fund
with a focus on sustainable farming practices.
–
Identify additional measurement technologies.
The a2 Milk Company 2024 Annual Report
41
Sustainable packaging
Sustainable packaging is an important element of the
Company’s ambition to protect the planet.
The Company has designed its product packaging to protect the health and safety
of consumers and reduce food waste as a first priority. However, it recognises that
packaging, and related impacts such as litter, ocean waste, micro-plastics, use of
non-renewable materials and landfill, are issues of concern to a2MC consumers and
stakeholders, and is focused on designing recyclable and reusable packaging while
increasing the use of recycled materials in packaging, where it does not affect product
integrity and safety.
In Australia, the Company is a member of the Australian Packaging Covenant
Organisation (APCO) and has aligned to its 2025 National Packaging Targets, where
the industry is working together towards 100% recyclable, reusable or compostable
packaging, 70% recovery of plastic packaging, 50% average recycled content, the
phase out of single-use and problematic packaging, and the roll-out of consumer
educational logos on how to dispose of packaging.
The Company is taking a similar approach to sustainable packaging for products
sold in all markets, designing for recycling or reuse, applying relevant disposal and
recycling instructions, and working to increase the use of recycled content where
possible.
In April 2023 APCO announced a review of the National 2025 Packaging Targets
which indicated it is unlikely the targets will be met by the end of 2025 and a longer-
term vision is needed to guide action. a2MC remains committed to its sustainable
packaging targets and will adjust the timelines of its targets once further guidance
has been received, to ensure they remain aligned with industry standards and best
practices.
FY24 PROGRESS
–
Actively participated in industry working groups for sustainable
packaging, enabling the Company to closely collaborate
with industry to navigate industry-wide challenges.
–
Continued to review and progress against the Company’s sustainable
packaging roadmap.
–
Submitted its third APCO Annual Report, maintaining a rating of ‘Leading’.
–
Continued to investigate innovative packaging design for sustainable solutions.
NEXT STEPS
–
Continue to execute against its sustainable packaging roadmap
and make progress against sustainable packaging targets.
–
Incorporate 20% recycled content for HDPE in fresh milk bottles within Australia.
–
Work with suppliers to increase recycled content in shippers and tin.
100%
reusable, recyclable,
or compostable packaging
Drive packaging
recovery
through consumer education
50%
average recycled content
included in packaging
Phase out
of problematic and unnecessary
single- use plastics packaging
SUSTAINABLE PACKAGING
TARGETS AND COMMITMENTS
Progress towards our goals – Planet (continued)
42
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Progress towards our goals (continued)
FY24 PROGRESS AGAINST TARGETS
Target
Progress
100% reusable, recyclable,
or compostable packaging
Fully recyclable packaging reduced from 87.1% in FY23 to 83.3%1 in FY24. This
reduction was due to increased production of UHT and opaque PET products.
Alternative packaging solutions are being investigated; however, limited available
and viable solutions is making it challenging for the Company to convert all of its
packaging to fully recyclable materials.
Drive packaging
recovery through
consumer education
The Company will continue to apply appropriate disposal and recycling information
for consumers, including applying the Australasian Recycling Logo (ARL) to
packaging sold in the Australian market, where possible.
50% average
recycled content
The Company remains committed to achieving specific material targets in relation
to recycled content for its product range. Refer below for detail.
– 20% recycled
content for HDPE
The Company is on track to incorporate 20% recycled content for HDPE in fresh milk
bottles within Australia.
– 60% recycled
content for paper
The Company aims to have up to 100% recycled content for paper in all Australian
shippers. Collaborative efforts with the Company’s primary IMF manufacturer are
underway to increase the recycled content in New Zealand shippers.
– 35% recycled
content for metals
Despite ongoing challenges in validating recycled content in metal tins, the Company
is actively collaborating with industry partners and direct suppliers to address
this issue.
Phase out of problematic
and unnecessary single-
use plastics packaging
The Company has reviewed its products sold in Australia against APCO’s framework
for assessing problematic, unnecessary and single-use plastics and has determined
it does not have any packaging materials that meet the criteria to be phased out by
2025. The Company will continue to assess any new packaging materials added to
its product portfolio against this framework.
1 Total recyclability as a percentage assumes that all consumers dispose of packaging in line with recycling guidelines.
43
The a2 Milk Company 2024 Annual Report
Progress towards our goals – Consumers
CONSUMERS
Bring the unique benefits
of pure and natural
a2 Milk™ to as many
consumers as possible.
SDG 12: Responsible
consumption and production
Target 12.5
SDG 3: Good health
and wellbeing
Target 3.4
SUSTAINABLE DEVELOPMENT GOALS
SDG 9: Industry, innovation
and infrastructure
Target 9.1
44
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
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-type 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 and delivering
products that are safe and of high-quality.
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.
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 the Company’s future product innovation, bringing the benefits of
a2 Milk™ to a broader audience of consumers.
There are four key focus areas to ensure the Company can continue to deliver
a targeted and differentiated brand proposition and product portfolio:
–
Invest in science, nutrition and beta-casein education.
–
Build and strengthen brand adoration.
–
Create a distinctive product portfolio.
–
Help consumers understand the benefits of a2 Milk™.
FY24 PROGRESS
–
The Company increased marketing investment by 7.6% in FY24 primarily
reflecting a significant step-up in China above-the-line brand investment as
well as below the line activation in line with its growth strategy.
–
The Company launched a refreshed visual identity for its brand that is now
being rolled out across categories, markets, and touch points.
–
The Company’s product portfolio underwent considerable change in
FY24, with the evolution of existing products, introduction of several new
products such as a2 Gentle GoldTM and new fortified milk powder tubs, as
well as opening up new markets through geographic expansion.
CONSUMER SECTION
True a2TM
P46
Pioneering in science
P47
Regional highlights
P48
Product quality and
food safety
P49
Responsible marketing
P49
MARKETING INVESTMENT INCREASED
$ million
FY22
FY23
FY24
15
33
182
230
6
38
216
260
7
36
237
280
USA
ANZ
China
UNPROMPTED BRAND
AWARENESS IN CHINA
>25%
FY24: 25%, FY23: 23%
CHINA LABEL IMF
MARKET SHARE IN CHINA
≥5%
FY24: 4.9%, FY23: 3.9%
ENGLISH LABEL IMF
MARKET SHARE IN CHINA
≥25%
FY24: 20.2%, FY23: 19.0%
SALE OF OTHER
NUTRITIONALS IN CHINA
>$200m
FY24: $110m, FY23: $80m
SAMR REGISTERED CHINA
LABEL PRODUCTS
≥3
Following FY24, a2MC expects to
access an additional registration
slot at Synlait’s Dunsandel plant
MEDIUM-TERM
CONSUMER TARGETS
15.9%
16.4%
16.7%
% sales
The a2 Milk Company 2024 Annual Report
45
Progress towards our goals – Consumers (continued)
True a2™ represents our promise of exceptional quality
True a2™ is our promise of exceptional quality, representing our commitment
to uncompromising care, and creating products of genuine quality. Our unique
True a2™ ecosystem ensures that from our farms all the way to families, the finest
a2™ products reach consumers in premium quality condition. Leveraging over
20 years of pioneering experience and expertise, as well as established partnerships
with leading industry specialists, True a2™ consists of five critical elements:
Pioneering science
Ever since 2000 when the pioneering
work of our founders unlocked the
natural wonder of a2 Milk™, The
a2MC has been dedicated to sharing
this discovery with the world.
Focused exclusively on products
made with a2 Milk™, a2MC has built
an unrivalled understanding of A1
and A2-type beta-casein proteins
and has been granted over 70 related
patents over two decades.
Dedicated farms
The a2™ brand was born on the
pristine plains of New Zealand’s
finest dairy regions. So wherever
in the world you find our True a2™
products, we’ve stayed true to the
richness and purity of our homeland.
We are proud to work with a team
of dedicated, passionate farmers
to source our pure and natural
a2 Milk™.
Specially selected cows
At a2MC, we are extremely particular
about our cows and how they are
cared for.
a2MC’s world-class animal welfare
programmes are verified by leading
independent experts.
Rigorous identification, segregation
and tracking ensure our cows
naturally produce milk with only
A2-type protein and no A1,
safeguarding the integrity and purity
of the milk – all the way from cow
to cup.
World-class processing
a2™ products are manufactured
only at modern production facilities
with the highest quality standards
leveraging our established
relationships with trusted partners
throughout our supply chain
network.
Passionate experts combine
advanced technology with
uncompromising care to deliver
products of exceptional quality.
Advanced testing and tracking
Nothing is more important to us than the safety and integrity of
our products. That’s why quality testing is an integral part of the
manufacturing process.
We adhere to strict standards of rigorous testing throughout the entire
production process, as well as meticulous batch tracking across our
product range to provide consumers with the highest levels of confidence.
In addition, a multi-layered tracking program on our IMF range provides
an additional layer of confidence in the authenticity and provenance of
our products.
46
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Pioneering in science
Invest in science, nutrition and A1 protein free science education.
As a pioneer of A1 protein free 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 more recently 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.
With research being undertaken in China, ANZ and the
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
communication on science, nutrition and innovation.
Building brand equity
The Company is committed to increasing marketing 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 wellbeing 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 ordinary cows’ milk
may experience benefits when they switch to a2 Milk™.
Innovation
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 a2 Milk™
and is divided into three core categories. Having established
a strong core product range, the Company is committed to
continuing to grow its premium portfolio through innovation.
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.
The a2TM Difference
Dairy is great, A1 protein free is better, a2TM is best
At The a2 Milk Company we believe in the power of dairy, and delicious and nutritious milk
is dairy at its simple, natural best – foundational nutrition packed with a range of nutrients
essential for a healthy life whatever your life stage.
But we have also always known that not all milk is the same, and dairy can be done better.
Sourced exclusively from cows specially selected to naturally produce milk with only
A2-type protein and no A1, a2 MilkTM is naturally
free from A1 protein.
Ever since the pioneering science of our founders
unlocked the natural wonder of A1 protein free
milk, The a2 Milk Company has been exclusively
dedicated to sharing these benefits with the world.
The a2 Milk Company 2024 Annual Report
47
Progress towards our goals – Consumers (continued)
ANZ
–
Brand relaunch with new impactful pack design and fresh milk Tough Tummies campaign delivered significant lifts in
spontaneous awareness, NPS and brand advocacy.
–
Upweighted digital campaigns and publisher partnerships increasing awareness of A1 protein free benefit.
–
Enhanced retailer programmes driving stronger conversion in store and online.
–
Significant investment supporting a2 Milk® Lactose Free delivering 17% share.
–
Launched four new products across portfolio, increasing access and value for a2 Milk™ shoppers.
–
Increased household penetration and achieved #1 Fresh Milk brand in retail for first time.
–
Largest media investment in the Australian fresh milk category.
Regional highlights
China
–
Launched upgraded GB registered China label IMF
product, exceeding expectations. This achievement
was supported by a large-scale integrated marketing
campaign.
–
Achieved growth in IMF sales during the new
GB transition period.
–
Continued to reach new highs in brand health metrics,
particularly in awareness among pregnant and early
stage users and in lower tier cities with a strong
consumer value proposition.
–
Increased offline distribution in lower tier cities, with
a more integrated approach to new user recruitment.
–
Delivered strong growth across Fresh Milk, UHT and
Adult Milk Powder categories.
USA
–
Successfully launched a2 Platinum® IMF in the USA with
an offline regional test and nationally available online.
–
Continued to progress long-term FDA approval.
–
Continued to focus on building awareness for the benefits
of A1 protein free milk and driving consumer trial for the
a2 Milk™ portfolio of products.
International
–
Launched new EL IMF Product a2 Gentle Gold™,
in Australia and selected channels in China.
–
Launched a2™ Immune and a2™ Move nutritional
milk powders, products with distinct functional
benefits, targeting the unmet needs of the young
adult market.
–
Strong growth in other nutritionals through new tub
products launched in the prior year.
–
a2 Platinum® Toddler Milk continued to be highly
rated by parents and was a productreview.com.au
2024 award winner in the baby formula category.
–
Engaged Daigou with a range of initiatives including
hosting Alibaba Expo events to amplify brand
presence, providing marketing materials to increase
share of voice, and introducing a mini-app to
incentivise support for a2TM brands.
48
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 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 A1/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.
–
China Organic (COFCC) Certification for a2 Milk™ Instant
Whole Milk Powder and a2 Milk™ Whole Milk Powder
products, manufactured at MVM.
–
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.
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.
The a2 Milk Company 2024 Annual Report
49
Progress towards our goals – Shareholders (continued)
SHAREHOLDERS
Create long-term, enduring value for
shareholders and maintain a trusted,
transparent relationship.
SDG 8: Decent work
and economic growth
Target 8.2
SUSTAINABLE DEVELOPMENT GOALS
Progress towards our goals – Shareholders
50
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Shareholders
Delivering on the Company’s medium-term financial targets or ambition
requires a compelling growth strategy, underpinned by strong operational
performance 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 capability, 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
execution progress. The Company continues to provide more information
through its approach to integrated reporting and a variety of reporting
frameworks including New Zealand’s External Reporting Board (XRB),
the International Sustainability Standards Board (ISSB), the Taskforce for
Nature-related Financial Disclosures, Sustainability Accounting Standards
Board (SASB) and Global Reporting Initiative (GRI).
In FY24 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.
Strong financial performance since FY21
As part of its growth strategy, a2MC has defined its medium-term financial
ambition to grow revenue from $1.2 billion in FY21 to approximately
$2 billion by FY27 or later, and to target EBITDA margins in the ‘teens’.
Since FY21, a2MC has achieved strong growth in revenue and EBITDA of
38.8% and 89.9% respectively. This represents an incremental revenue
uplift of $469 million and EBITDA margin uplift of 3.8ppts as well as a
compound annual growth rate of 11.6% for revenue and 23.8% for EBITDA.
The Company has also delivered an earnings per share (on a diluted basis)
compound annual growth rate of 28.5%.
In FY24 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 the future. A detailed overview of
the Group financial performance for FY24 is provided in the CEO’s year in
review section (refer to page 5 to 13).
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 a2MC’s capital
framework which is summarised in the image on the following page.
The Company’s capital allocation framework is continually reviewed by
management and the Board.
MEDIUM-TERM
SHAREHOLDER TARGETS
OTHER METRICS
REVENUE GROWTH
~$2 billion
revenue
by FY27 or later
FY21 to FY24: 11.6% CAGR
EBITDA MARGIN
EBITDA %
in the teens with year
on year improvement
FY24: 14.0%, FY23: 13.8%
EARNINGS PER SHARE
(EPS) GROWTH
>10% EPS growth
per annum
FY21 to FY24: 28.5% CAGR
+32.7%
Closing share price growth
57.9%
Return on capital
employed (ROCE)1
1. ROCE is defined as EBIT/Capital
Employed. Capital Employed is
calculated as total assets less current
liabilities and cash and term deposits.
The a2 Milk Company 2024 Annual Report
51
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, however holds a facility specific to Mataura Valley Milk
Limited which is undrawn at 30 June 2024 (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.
Consistent with the Company’s capital allocation framework,
priority is being given to transforming and de-risking a2MC’s
supply chain to enable future growth focused on investment
in New Zealand and China. Once the Company’s supply chain
transformation is further developed and other investment
opportunities are considered, to the extent there is a capital
surplus to achieving a2MC’s priorities, the Board will make a
disciplined assessment of the potential to return capital to
shareholders and the most appropriate option to do so.
Strategic partnerships and supply
chain investments
The Company has built its foundations with a number of key
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 State Farm Agribusiness
and China Animal Husbandry Group provide invaluable insights
and assistance in understanding the trade and regulatory
environment in China. a2MC also has supply and other
relationships with Synlait, MVM, New Zealand New Milk,
Yashili NZ 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
strategic 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 112 active IMF distributors and approximately
105 UHT and milk powder distributors throughout the country.
The Company’s agreement with CSFA is for a term of five years
from 1 October 2022 in addition to 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.
Capital allocation framework
Investment
Excess capital
Grow core business in existing markets
–
Invest in building core business, including brand,
product innovation and channel development
–
Develop execution capability through investing
in talent, systems, quality, safety, infrastructure
and partnerships
–
Transform supply chain and existing market access
–
Assess M&A opportunities to support core
business growth and supply chain transformation
Expand the boundaries
–
Expand in existing markets
with new product categories
–
Leverage existing products
into new markets
–
Assess M&A opportunities to
expand boundaries
Balance sheet strength and
flexibility
–
Support business growth
and risk management
initiatives
–
Maintain a conservative cash
reserve to manage in an
uncertain environment
Available capital and operating cash flow
Shareholder returns
52
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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 currently has a 39.0% interest
in Synlait and is its controlling shareholder.
In August 2024, the Company announced that it had
conditionally resolved its arbitration disputes with Synlait,
including Synlait’s acceptance of the validity of a2MC’s
notice of cancellation of exclusivity, whilst gaining access to a
potential additional China label IMF product registration slot
to be developed by December 2029 subject to SAMR approval.
The Company also announced its support and participation in
Synlait’s equity raise on agreed terms, to be set out in Synlait’s
forthcoming notice of meeting. The disputes settlement is
conditional on Synlait completing its equity raise and the
refinancing of Synlait’s existing banking facilities.
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 at an owned facility, achieve additional China label
registrations over time and capture vertical manufacturing
margins. In FY24, the Company transitioned manufacture of
base powder for a2 Platinum® IMF Stage 4 to MVM.
Fonterra
The Company’s arrangements with Fonterra Co-operative
Group Limited include an exclusive licensing agreement for
the production, distribution, sale and marketing of a2 Milk™
branded fresh milk in the New Zealand market entered into
in 2018.
AgriZeroNZ
In FY24 the Company invested in AgriZeroNZ, a partnership
between the New Zealand Government and industry
stakeholders. AgriZeroNZ aims to reduce enteric methane and
nitrous oxide emissions. This investment underscores the
Company’s commitment to supporting New Zealand farmers
in lowering on-farm greenhouse gas (GHG) emissions.
ESG Reporting
New Zealand Climate Reporting
The a2 Milk Company is a climate-reporting entity under
the Financial Markets Conduct Act 2013.
The a2 Milk Company’s climate-related disclosures in its
Climate Statement comply with Aotearoa New Zealand Climate
Standards issued by the External Reporting Board. Please refer
to The a2 Milk Company’s Climate Statement here.
In FY24, The a2 Milk Company reported in accordance with
CS 1, CS 2 and CS 3 of New Zealand’s External Reporting Board.
The XRB Climate Standards take into consideration both the
TCFD framework and the ISSB standards. For further details,
please refer to the Company’s Climate Statement.
During FY24, the Company conducted its second climate
scenario analysis, adhering to the requirements set by both
XRB and the Paris Agreement (with a minimum 1.5-degree
scenario). The Company has maintained its focus on strategic
responses to risks identified through scenario analysis, tracking
progress against its net zero roadmap and consumer demands.
Going forward, the Company will continue to conduct refreshed
analyses as needed or in response to material changes.
Taskforce on Nature-related Financial Disclosures
In FY24, after a two-year design and consultation phase, the
Taskforce on Nature-related Financial Disclosures (TNFD)
published its disclosure recommendations and supporting
implementation guidance.
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. The Company is preparing to report in line
with the requirements and recommendations of the framework
in the coming years and expects to increase its transparency
and accountability in relation to nature-related risks and
opportunities.
Australian Sustainability Reporting Standards (ASRS)
The Australian Government is expected to pass legislation in
2024, which will introduce mandatory climate-related financial
disclosures for certain entities. Given the efforts made to
adhere to the Aotearoa New Zealand Climate Standards and
the International Sustainability Standards Board standards,
the Company is well-prepared to report against the ASRS
climate-related disclosures when required.
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. In FY24, the Company considered
the SASB, Food and Beverage – Meat, Poultry and Dairy
standards when disclosing ESG metrics.
Global Reporting Initiative (GRI)
In FY24, the Company aligned to the GRI universal standards.
The GRI is an independent international standard that aims
to standardise comparable, and consistent ESG information.
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.
The a2 Milk Company 2024 Annual Report
53
Risks and
opportunities
The management of risks and opportunities is an inherent
and important part of actively growing and developing
a sustainable 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 Company’s 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 systems.
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.
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
its 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 impacts if these risks occur.
The Company’s risk management approach evolves continually
as it identifies, assesses, monitors and mitigates both financial
and non-financial risks that may affect its ability to achieve its
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.
54
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
THE NINE
SOURCES
OF KEY RISK AND
OPPORTUNITY
The Company has
identified nine
sources of risk
and opportunity
relevant to its
business activities.
The supply of
nutritional
food products
Competitive
intensity
Doing business
in international
markets
Major
international
events
Climate and
nature
Strategic
partnerships
Evolving
technology and
cyber security
Talent and
culture
Social licence
to operate
→PAGE 56
→PAGE 61
→PAGE 57
→PAGE 62
→PAGE 58
→PAGE 63
→PAGE 55
→PAGE 60
→PAGE 59
The supply of nutritional food products
a2MC 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
food safety and/or quality concerns
–
Priority focus on food safety and quality management.
–
Food safety and quality systems audited by accredited third-party
verification agencies.
–
Reliance on high-quality third-party manufacturing partners.
–
Rigorous positive release protocols prior to the release of finished product.
–
Expand product portfolio to reduce reliance on individual products.
–
Enhance traceability systems and implement across non-IMF categories.
–
Product innovation and technology to enhance product security.
–
Testing of certain distributed products in selected markets by an
independent third-party.
–
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 46).
–
Maximise the potential of our existing product portfolio in key markets.
–
Explore opportunities to innovate and expand our existing product portfolio.
–
Enter adjacent product categories to drive growth.
–
Strengthen consumer trust through Quality Assurance Programme.
The a2 Milk Company 2024 Annual Report
55
Competitive intensity
a2MC has experienced significant growth over recent years, and is
now a top 5 brand in the China IMF market and the leading premium
liquid milk brand in Australia. This success has inspired others to
compete with a2MC in the A2-type beta-casein protein segment.
KEY RISKS
KEY RESPONSES
Market share erosion in core markets
due to a) domestic brands’ potential to
resonate and connect more effectively
with local consumers than international
brands; or b) unclear, misunderstood or
undefined A2-type beta-casein protein
(or A1 protein free) regulatory standards;
or c) the adequacy of the product range
to appeal to a broad consumer group
–
Plan to obtain additional China label registrations to expand the Company’s IMF product
portfolio.
–
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-type beta-casein 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
(IP) 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 46).
KEY OPPORTUNITIES
While competitive intensity can present market share erosion risks, it also expands consumer awareness of the segment and
engagement with the benefits of a2 MilkTM, encourages opportunities in relation to product innovation and allows a2MC to further
leverage its pioneer premium brand status. Opportunities exist to:
–
Emphasise our proprietary know-how and quality processes to deliver A2-type beta-casein protein products that are of
unrivalled quality.
–
Invest in science, nutrition and innovation to continue to pioneer the future of dairy and the A2-type beta-casein protein
segment as well as explore new opportunities.
–
Drive awareness and education of our unique A2-type beta-casein protein proposition and benefits to increase our
consumer base.
56
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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
the addressable markets and/or the
complexity of operating in those markets
(e.g. declining China birth rates)
–
Strong focus on innovation and new product development to broaden portfolio
and addressable markets.
–
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 advice.
–
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
–
Ongoing refinements to simplify and delayer English label infant milk formula
distribution network, supported by more transparent partner relationships and
greater control with enhanced traceability systems.
SAMR2 product registration for China label
infant nutrition
–
Close partnership with infant nutrition manufacturer, Synlait, which holds GACC3
and SAMR registrations allowing China label IMF to be exported to and sold into the
China market.
–
Collaborative approach with Synlait to successfully maintain SAMR registration.
–
Transitioned to newly registered China label product without impacting sales
momentum.
–
Conditionally resolved commercial disputes with Synlait and secured additional China
label registration slot. Refer to page 53.
Long-term approval of USA IMF
–
Commenced distribution of a2 Platinum® IMF under US Food and Drug Administration
(FDA) Enforcement Discretion with selected retailers in-store and online.
–
Collaboration with Synlait, to complete and prepare for submission of the
New Infant Formula Notification (NIFN) to seek FDA approval for the sale of
USA IMF product beyond the period of Enforcement Discretion.
–
Use of third-party local experts to provide FDA guidance in association with
completion of the NIFN.
1
Refer to Shareholders section for detail on partnerships.
2
China’s State Administration for 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.
KEY OPPORTUNITIES
Doing business in international markets provides opportunities for the Company to fulfil its vision of creating an A1 protein free
world. 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 into attractive new markets (e.g. South East Asia).
–
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.
The a2 Milk Company 2024 Annual Report
57
Major international events
Pandemics, epidemics, outbreaks of animal diseases, international conflicts
and natural disasters can cause unprecedented social, economic and supply
chain disruptions globally.
KEY RISKS
KEY RESPONSES
Route-to-market disruption and transport
cost volatility
–
Continued close cooperation with Synlait and other suppliers to maintain continuity
of infant milk nutrition supply, and with third-party suppliers in Australia and the USA
to maintain continuity of liquid milk supply.
–
Multiple warehousing locations in China to mitigate supply chain disruptions.
–
Enhanced inventory surveillance and reporting to maintain stock control and
availability through the supply chain.
–
Safety stock held to provide buffer against market disruptions.
–
Transitioned production of a2 Platinum® Stage 4 IMF to MVM and another new
commercial IMF supply chain partner (New Zealand New Milk, a subsidiary of
Lactalis) to provide site diversification.
–
Added a new commercial IMF supply chain partner (Yashili NZ, subsidiary of Mengniu)
for production of a2 Gentle GoldTM.
–
Exploring options to complete some of the manufacturing process domestically in
China.
Health and wellbeing of our people
–
Continued focus on robust infection control protocols in line with all relevant
government requirements, particularly across the Company’s manufacturing facilities.
–
Investment in internal resources and systems focused on the health and safety of our
people.
Inflationary pressures creating
a) volatility in operating costs and
availability of ingredients and raw materials,
and b) cost-of-living pressures
–
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.
–
Investment in internal procurement team focused on procurement of product input
costs as well as operating expenses.
Potential animal disease incursions
impacting the ability to supply export
markets
–
Assist farmers with farm biosecurity plans and preparedness.
–
Ongoing refinement 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 product availability in supply-constrained environment.
–
Our company structure and culture provides agility to rapidly respond to global events.
–
New market/product opportunities where a2MC is able to positively respond more quickly than competitors.
58
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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
Climate Statement and index, within the ESG 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
–
Invested, and actively engaged, in industry collaboration joint venture AgriZeroNZ.
–
Established baseline and progressing against targets for GHG emissions reductions.
–
Monitoring and tracking water consumption, waste-to-landfill, water efficiency and
energy usage at manufacturing facilities.
–
Monitoring and tracking targets set for recycled content, recyclability and the phase out
of problematic plastic for a2MC branded product packaging (refer to pages 42 to 43).
–
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 and
the completion of the Company’s first methane feasibility study.
–
Requirement for all certified A1 protein free farms supplying a2MC to have farm
environmental plans in place, addressing the most material aspects of environmental
management in the dairy industry.
–
Continued support for the a2TM Farm Sustainability Fund to assist farmer-led
sustainable dairy farming projects.
Risk of natural disasters (e.g. flooding,
drought, earthquake), particularly
in Dunsandel given the China label
product registration can only be
made at that specific site
–
Diversification of processing locations and new supplier relationships established in
New Zealand.
–
Plan to obtain additional China label registrations.
–
Insurance coverage.
Risk of non-compliance with upcoming
ESG standards, given change in
regulatory environment across the
jurisdictions in which it operates
–
Obtaining external assurance over climate and other sustainability metrics, including
various sections of the Company’s Climate Statement.
–
Early adoption of required ESG reporting standards where possible.
KEY OPPORTUNITIES
Acknowledging climate and nature risks provides significant opportunity for the Company to play a leading role in driving industry
change and build trust with increasingly climate aware consumers. Ensuring climate scenarios and modelling are considered in
medium-term and long-term strategic planning will enable the Company 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 leadership position in GHG emissions reduction, recyclable packaging and farming
practises.
–
Realise increased productivity and efficiency via new technologies and practises that lower emissions and environmental
impact.
–
Enhance our climate risk modelling and Taskforce on Climate-related Financial Disclosures (TCFD) reporting and early adoption
of the voluntary Taskforce on Nature-related Financial Disclosures (TNFD) framework.
The a2 Milk Company 2024 Annual Report
59
Strategic partnerships
The Company’s success has been underpinned by relationships with
key strategic partners1, 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.
–
Conditionally resolved disputes with Synlait and announced a2MC’s intention
to support and participate in Synlait’s equity raise. Refer to page 53.
–
Supplier diversification through driving insourcing and innovation at MVM
to mitigate current supplier concentration in IMF.
–
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).
–
The Company has formed a strategic partnership with Yuou through a distribution
agreement signed in April 2023. Yuou is a leading Offline-to-Online distributor in
China that operates ~1,500 Momtime (China’s premier O2O network) stores and
a digital platform, Yuncang, that services over 16,000 stores.
Key partners reprioritising their support for
a2MC or failing to act ethically or in line with
a2MC’s values
–
Conditionally resolved commercial disputes with Synlait and secured additional
China label registration slot. Refer to page 53.
–
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).
–
Additional commercial supply chain partnerships with New Zealand New Milk,
subsidiary of Lactalis, and Yashili NZ, subsidiary of Mengniu.
–
Pursuing additional M&A, joint venture and alliance opportunities with
IMF manufacturers to further diversify supplier risk in longer-term.
–
Stabilised our English label infant milk formula distribution network, supported
by more transparent partner relationships and greater level of transparency
through enhanced traceability systems.
–
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
–
Ongoing access to milk pools that exceed the Company’s current usage requirements.
–
Access to manufacturing capacity that exceeds current usage requirements.
1 Refer to shareholders section for detail on partnerships (pages 50 to 53).
KEY OPPORTUNITIES
Our key partnerships provide significant opportunities including:
–
Access to high quality manufacturing capability and 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.
–
Access to lower tier cities in China through strategic partners that have a physical and online presence in regional locations.
60
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
Evolving technology and cyber security
Technology is used by a2MC as a key enabler to build awareness of the
effects of A1 protein, and promote brand loyalty, process transactions,
forecast sales, manage stock, manage product purchases and deliveries,
manage operational production and product traceability 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
–
Continuing to enhance cyber security systems, processes and protections, including
engagement of specialised third parties to assist with 24/7 monitoring.
–
Implementing additional, more sophisticated cyber tracking and monitoring tools
covering areas including email and sensitive data.
–
Classification and restriction of access to sensitive information.
–
Conducting cyber security audits and third-party risk assessments.
–
Extensive deployment of Software as a Service (SaaS) solutions, e.g. Oracle Cloud,
which significantly reduces the risk associated with on premise systems and
supporting hardware.
Reliability/stability of critical applications
–
Continued transitioning of 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.
–
Continued 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 enhanced decision making.
–
The use of emerging product technology including supply chain traceability systems.
–
Increased automation of supply chain, sales and distribution processes over time.
–
Increased integration of customers and suppliers via EDI and other eCommerce solutions.
The a2 Milk Company 2024 Annual Report
61
Talent and culture
The Company relies on the talent and wellbeing of its people and
the efficacy of its culture to drive commercial outcomes and deliver
its strategic priorities. 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, positive duty and workplace behaviour training, integrative
employee assistance programme, and mental health awareness training for leaders.
–
Implementation of dedicated site safety managers at manufacturing sites.
–
Active promotion of an inclusive and diverse workplace through initiatives that reiterate
our culture of ‘bringing your authentic self’ to work.
–
Continued investment in the development of constructive and humanistic leaders
through the use of Lifestyles Inventory (LSI) tool and our ‘Thrive’ constructive
leadership development programme.
Sub-optimal organisational culture (including
the ability to attract, retain and develop
capable talent)
–
Strong cultural values, complemented by monthly and annual acknowledgement and
reward programme for those exhibiting the values in day-to-day activities.
–
Regular surveys to monitor engagement and drive targeted people initiatives.
–
Alignment of remuneration to market benchmarks, annual third-party review of job
grading and gender pay parity. Regular talent discussions at Executive Leadership Team
(ELT) level.
–
A rigorous recruitment and selection process with structured induction/onboarding.
–
Continued evolution of the operating model to reinforce talent and ‘bench strength’ at
all levels and functions.
–
Investment in formal and on-the-job learning and development opportunities to support
individual development plans.
–
Evolution of 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 fundamental to attracting, developing and retaining
talent. The opportunity to grow capability and attract talent, exists through:
–
Amplifying the unique attributes of working at a2MC and our aspiration to be an employer of choice in the sector.
–
Nurturing the inherent energy, passion, and enthusiasm that working for a trusted and unique brand attracts.
–
Promoting the employee experience, fostering a learning environment, and celebrating diversity and inclusion.
–
Cultivating our purpose-driven culture.
62
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Building a sustainable growth business
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
–
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 pages 40 - 41).
Responsible marketing (e.g. promotion
of breast milk substitutes)
–
Signatory to the Marketing in Australia of Infant Formula: Manufacturers and
Importers Agreement 1992 (MAIF Agreement) (refer to page 49).
–
a2MC is a member of Infant Nutrition Council (‘INC’) which includes obligations to
comply with the INC Code of Practice for Marketing of Infant Formula in New Zealand.
–
Cross-functional approval process (including regulatory and legal review) prior to
publication of marketing material.
Modern slavery in the supply chain
(refer to page 30)
–
Modern slavery risk management programme, including Modern Slavery Response
Protocol, Modern Slavery Remediation Plan and related actions plans and annual
Modern Slavery Statement submission.
–
Corporate values and a suite of corporate codes and policies developed and
embedded (including a Code of Ethics and a Responsible Sourcing Policy).
–
Company-wide Modern Slavery awareness training, including more in-depth training
for key stakeholders.
–
Supplier risk assessments.
Potential bribery and corruption allegations
–
Corporate values and a suite of corporate codes and policies developed and
embedded (including an Anti-Bribery and Anti-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
The Company’s 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:
–
Aspiring 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.
–
Taking a leadership position in protecting our planet.
The a2 Milk Company 2024 Annual Report
63
Corporate
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.
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 1 April 2023
(NZX Corporate Governance Code)
–
the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations,
4th Edition (ASX Principles)
For FY24 the Company’s corporate governance framework
complied with the recommendations in the NZX Corporate
Governance Code and the ASX Principles.
Corporate Governance Statement
The Company’s Corporate Governance Statement, which is
current as at 30 June 2024 and approved by the Board, can be
found at www.thea2milkcompany.com/corporate-governance.
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 Committees. Other
committees may be established from time to time with specific
responsibilities as delegated by the Board. For example, a Synlait
Subcommittee was established in FY24 (refer to next page).
The diagram opposite illustrates the Company’s corporate
governance framework.
Audit and Risk Management Committee (ARMC)
The principal purpose of this Committee is to assist the
Board in fulfilling its corporate governance and oversight
responsibilities in relation to the Group’s risk management and
internal control systems, accounting policies and practices,
sustainability and climate risk management and strategy
implementation, internal and external audit functions, and
corporate reporting, including sustainability reporting. The
ARMC meets regularly throughout the year, holding meetings
and workshops (FY24: six total). Under the ARMC Charter, the
ARMC is required to meet at least twice per year.
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. The PRC meets
regularly throughout the year, holding meetings and workshops
(FY24: five total). Under the PRC Charter, the PRC is required to
meet at least once per year.
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. This Committee was disbanded,
with effect from 16 November 2023, with the intention that the
Board will manage director nominations moving forward.
These Board Committees are governed by charters detailing
their specific functions and responsibilities. Copies of the
Committee charters are available at
www.thea2milkcompany.com/corporate-governance.
64
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
(i) Accountability and reporting of corporate
governance and Board related matters.
(ii) Board delegates all matters except those
reserved for the Board or its Committees.
(iii) Internal audit/external audit/legal and
other professional advice.
(iv) Responsible for day to day operations;
leads the Executive Leadership Team.
(v) Implements strategy and business plans;
manages performance and behaviours of
teams.
(vi) NOM disbanded from 16 November 2023.
Governance framework
Company
Secretary(i)
Independent
assurance(iii)
Delegation and
oversight(ii)
Delegation and
oversight
Delegation and
oversight
Accountability
and reporting
Accountability
and reporting
Accountability
and reporting
Board of
Directors
Board
Committees
(ARMC, PRC,
NOM(vi))
CEO(iv)
Executive
Leadership
Team(v)
Synlait Subcommittee
During FY24, the Board established an informal subcommittee
comprising three directors (Pip Greenwood, Kate Mitchell,
Sandra Yu), and delegated specific responsibilities to this
committee in relation to the resolution of disputes between
a2MC and Synlait, and assessment of Synlait’s proposed
recapitalisation plan.
Board size, skills and structure
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. During the reporting period, the Board comprised
between five and six independent Non-executive Directors and
one Executive Director, the Managing Director and CEO, David
Bortolussi. David Hearn retired from the Board with effect from
16 November 2023. Pip Greenwood assumed the role of Chair
from the same date. Pip Greenwood and Kate Mitchell are New
Zealand residents.
Skills
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. The skills
matrix set out on the following page describes the combined
skills, experience and expertise presently represented on the
Board, but also recognises the skills and experience that the
Board considers is required to effectively govern the Group
now and in the medium-term. For example, in FY24 the Board
adjusted the ‘Sustainability’ capability to ‘Environmental and
social’ to reflect the broader impacts of doing business on
climate, nature and communities. To the extent that any skills
are not directly represented on the Board, they are augmented
through management and external advisors.
The a2 Milk Company 2024 Annual Report
65
NO. OF DIRECTORS
(TOTAL OF 6)
CAPABILITY
LEVEL OF CAPABILITY
HIGH
MEDIUM
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
2
2
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
1
1
Financial acumen – understanding of financial statements and reporting, key drivers of financial
performance, corporate finance and internal controls
2
2
Food manufacturing safety and quality – technical or managerial experience relating to food, food
product development, manufacturing and implementation and management of safe practices for the
sourcing, production, transport and distribution of perishable foods
2
0
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
2
2
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
3
3
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
4
2
People and culture – experience in overseeing workplace culture, people management, development and
succession planning, setting remuneration frameworks and promoting diversity and inclusion
2
3
Risk management – experience in identification, assessment, monitoring and management of material
financial and non-financial risks and understanding, implementation and oversight of risk management
frameworks and controls
2
3
Strategy and M&A – development of corporate and business unit strategy and/or mergers, acquisitions
and alliance structuring and execution
3
3
Environment and social – understanding and experience in sustainable practices to manage the impact of
business operations on the environment and community and assess and manage climate and nature risks
and opportunities
1
3
The Board skills matrix identifies the predominant skills of each director. Directors are assessed as ‘high capability’ or ‘medium
capability’ on skills outlined in the Board skills matrix, based on their professional or non-executive experience relating to a skill.
Directors initially provide a self-assessment rating which is then reviewed by the Board each year. The Board has limited each
director to having a maximum of four areas identified as ‘high capability’ and four areas as ‘medium capability’. A director is
considered to have ‘high capability’ where the director has deep experience or expertise in relation to the capability while a director
is considered to have ‘medium capability’ where the Director has some experience or expertise in relation to the capability.
Director induction and ongoing training
Following appointment to the Board, directors undergo a tailored induction programme to learn about the Company. The induction
programme covers the Company’s strategy, structure, operations, culture, risks and financials, and includes meetings with key
executives. New directors are also provided with copies of key governance documents.
The Board undertakes market visits, including visiting manufacturing facilities, on a regular basis to ensure that directors remain
informed of market conditions and the environment in which the Company does business. The Board is also provided with training
on relevant subjects each year, either from subject matter experts from within the Company or from external providers. All
directors are expected to maintain the skills required to discharge their obligations to the Company.
Board performance
The Board recognises the importance of regularly monitoring and improving its performance. The Board internally assesses its
performance annually. In FY24, the Board worked with an external consultant to review their mix of skills and experience to assist
with succession planning and effective ways of working.
Board Committees
The Board’s 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 2024 was as follows:
66
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
COMMITTEE
MEMBERS
INDEPENDENT
NON-EXECUTIVE
Audit and Risk Management Committee
Kate Mitchell (Chair)
Warwick Every-Burns1
David Wang
Sandra Yu
✓
✓
✓
✓
✓
✓
✓
✓
People and Remuneration Committee
Warwick Every-Burns (Chair)
Pip Greenwood2
David Wang
Sandra Yu
✓
✓
✓
✓
✓
✓
✓
✓
Nomination Committee3
Pip Greenwood (Chair)
David Hearn
✓
✓
✓
✓
1
Warwick Every-Burns ceased to be a member of the Audit and Risk Management Committee on 13 June 2024.
2
Pip Greenwood ceased to be a member of the People and Remuneration Committee on 16 November 2023.
3
The Nomination Committee was disbanded with effect from 16 November 2023.
Attendance at Board and Committee meetings
Director attendance at Board and Committee meetings during FY24 is set out below.
MEETINGS OF
THE BOARD2
AUDIT AND RISK
MANAGEMENT COMMITTEE3
PEOPLE AND
REMUNERATION
COMMITTEE4
NOMINATION COMMITTEE5
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
Pip Greenwood (Chair)
9
9
-
-
David Bortolussi
(Managing Director & CEO)
9
9
-
-
Warwick Every-Burns
9
9
3
3
3
3
-
-
David Hearn1
4
4
-
-
Kate Mitchell
9
9
3
3
-
-
David Wang
9
9
3
3
3
3
-
-
Sandra Yu
9
9
3
3
3
3
-
-
Held: meetings held during the period for which the person was a director or Committee member.
1 David Hearn: retired 16 November 2023.
2 In addition to the formal Board meetings, the Board also had two workshops to prepare for formal meetings and discuss any issues as they arose.
3 In addition to the formal Audit and Risk Management Committee meetings, the Committee also had three workshops to prepare for formal meetings
and discuss any issues as they arose.
4 In addition to the formal People and Remuneration Committee meetings, the Committee also had two workshops to prepare for formal meetings and
discuss any issues as they arose.
5 The Nomination Committee was disbanded from 16 November 2023.
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
–
Shareholder Communication Policy
–
Continuous Disclosure Policy
–
Global Whistleblower Policy
–
Diversity and Inclusion Policy
–
Global Anti-Bribery and Anti-Corruption Policy
–
Risk Management Policy. Refer to the discussion of this policy commencing on page 54.
–
Securities Trading Policy
–
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.
The a2 Milk Company 2024 Annual Report
67
DIRECTORS
Pip Greenwood
Chair & Independent,
Non-executive Director
Bachelor of Laws (LL.B.),
University of Canterbury
(New Zealand)
Pip has been a director of the Company since 1 July 2019, and Chair since
November 2023.
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,
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.
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)
David joined the Company in February 2021 from his previous 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 also has an interest in private equity and growth-phase businesses. He is
a member of the advisory board of Whiteoak and supports the development of
investee companies.
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.
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.
68
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
Kate Mitchell
Independent,
Non-executive Director
Bachelor of Arts Honours
(Modern Languages),
Oxford University, UK
Chartered Member of the
Institute of Directors,
New Zealand
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. She is also a director of Heartland Group Holdings, where she
chairs the Sustainability Committee and Christchurch International Airport,
where she chairs the People and Culture 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 in the Global Markets division within 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.
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. Most recently, David worked at Buhler AG,
which specialises in integrated plant equipment systems and related services
for food processing and advanced materials manufacturing.
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.
The a2 Milk Company 2024 Annual Report
69
EXECUTIVE LEADERSHIP TEAM
David Bortolussi
Managing Director and CEO
Bachelor of Commerce (University of Melbourne), FCA, F FIN,
Member of the Australian Institute of Company Directors (MAICD)
Refer to page 68.
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.
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.
Chopin Zhang
Chief Supply Chain Officer
Master, Business Administration (Maastricht School of
Management)
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 end to end supply chain
management, manufacturing, quality, regulatory affairs and cross-
border trade. 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)
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 of Danone’s
Specialised Nutrition division in ANZ, with Danone Nutricia’s
Specialised Nutrition division, having spent 14 years with the
organisation in several senior marketing, sales, channel and
category development positions. Edith has significant experience
in the infant and adult nutrition categories 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.
Amanda Hart
Chief People and Culture Officer
Bachelor of Business Administration (University of South Australia),
Member of the Australian Institute of Company Directors (MAICD)
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 Officer – 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 and Nike. Xiao was previously the GM of Pousheng
(HK listed sport retail), CEO of Burger King China and President of
Wanda Kids Group and SVP of Wanda Group.
70
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
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.
Eleanor Khor
Managing Director – ANZ and Strategy
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 Allens 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 the Company, 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. Kevin has recently been appointed as a
director of the International Dairy Foods Association (IDFA) Fluid
Milk Board.
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, Nestlé and McCain Foods.
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.
The a2 Milk Company 2024 Annual Report
71
REMUNERATION
Remuneration governance
The People and Remuneration Committee (Committee)
advises the Board on the policies and practices of the Company
regarding the remuneration of non-executive directors,
the Executive Leadership Team (ELT) (comprising the CEO
and direct reports 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 ELT members and other
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 ELT members and, as an aggregate, all other
employees at least annually.
The Committee seeks external professional advice from
time to time on remuneration matters. During FY24, 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 receive fixed remuneration. Selected
employees also have variable remuneration in the form of
a short-term incentive (STI) as part of their remuneration
package. ELT members and selected other senior leaders also
have a long-term incentive (LTI) in the form of equity as part of
their remuneration package.
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.
As disclosed in our FY23 Report, the Committee reviewed the
CEO’s remuneration framework. As a result of the review, in the
FY23 year (and to continue for FY24) the Company’s STI plan
structure for the CEO includes a percentage of deferral as
cash. In the interests of transparency and good governance,
the Board will also continue its practice of voluntarily putting
the CEO’s FY25 LTI grant to shareholders on an advisory basis
at the 2024 Annual Meeting of shareholders.
Managing ELT performance
Robust processes are in place for supporting and evaluating
the performance of ELT members 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 of the other
ELT members and captured in individual performance plans.
The CEO uses the performance plans to facilitate individual
conversations with the other ELT members. The performance
discussions are documented and form the basis of the annual
performance review that the CEO undertakes with each of the
other ELT members at the end of the performance period.
The outcome of each of the ELT members’ 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 FY24, each ELT member who was an employee for
the duration of the reporting period had a formal, annual
performance discussion documented.
MARKET
COMPETITIVE
Provide competitive rewards
to attract, motivate and
retain talented employees
and executives relevant to the
markets in which we operate.
BUSINESS
STRATEGY
Drive delivery of the
Company’s strategy
by rewarding performance
and having a mix of
short-term and long-term
remuneration elements.
VALUES AND
BEHAVIOURS
Be consistent with, and
supportive of, the Company's
values, ethical framework
and commitment to good
corporate governance.
SHAREHOLDER
ALIGNMENT
Link rewards to the creation
of sustainable value for
shareholders, whilst avoiding
inappropriate risk.
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.
72
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
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)
–
STI (variable remuneration)
–
LTI (variable remuneration)
TARGET
COMPONENT
PURPOSE
LINK TO STRATEGY AND PERFORMANCE
CEO
ELT2
FAR
Provides market
competitive
remuneration to attract
and retain talent while
reflecting role scope,
complexity, impact and
accountabilities
–
Based on skills and experience
relevant to the role, individual
performance and current
level of remuneration relative
to remuneration benchmarks
–
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
27%
29% – 43%
STI
Incentivises annual
achievement
of short-term
performance measures
against the Group
performance scorecard
–
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)
32%1
26% – 33%
LTI
Aligns reward with the
creation of sustainable,
longer-term
shareholder value
–
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
41%
32% – 43%
1
25% of the CEO’s Actual FY24 STI is deferred as cash for one year.
2
Excluding the CEO.
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 this timeframe.
The a2 Milk Company 2024 Annual Report
73
FY24 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 FY24, the CEO’s STI will continue to be 75% cash and 25% deferred as cash for one year.
The FY24 STI plan provides that the amount payable will be determined by reference to:
Opportunity
Group Performance
Outcome
Individual
Performance
Modifier
Outcome
FAR
$
x
Target STI
opportunity
%
x
FY24 Group performance
scorecard result %
(detailed below)
x
Individual
performance
modifier %
=
STI award
$
The STI plan incorporates a comprehensive assessment of Group performance, encompassing both financial and non-financial
measures. The FY24 Group Performance Scorecard includes financial measures with a weighting of 65% and non-financial
measures with a weighting of 35%, as set out in the table below.
For each objective there are threshold, target and maximum metrics (refer table below) to assess the Group’s performance against.
The outcomes range from 0% to 130%, with the target at 100% and outcomes are determined by the Board (excluding the CEO).
FY24 Group Performance Scorecard
FY24 STRATEGIC OBJECTIVES
METRIC
OUTCOME
WEIGHTING
AT TARGET
Financial measures
65%
THRESHOLD
TARGET
MAXIMUM
Shareholders
Revenue
30%
Earnings before interest, tax,
depreciation and amortisation (EBITDA)
30%
Inventory management
4%
Risk management
1%
Non-financial measures
35%
People
Safety performance,
employee engagement and
capability development
5%
Planet
Employee rating of a2MC sustainability
impact, and progress on packaging
and Scope 3 GHG emissions goals
5%
Consumers
Brand health
China brand health, Australian fresh milk
and USA household penetration (with
most weight placed on China outcomes)
5%
Market share
China label IMF (MBS and DOL), English
label IMF (CBEC and O2O + Daigou),
Australian fresh milk and USA premium
liquid milk (with most weight placed
on China outcomes)
5%
Innovation
China label new GB formulation
transition, progress on innovation
pipeline, market access, and sales
from new products (China, ANZ, USA)
10%
Quality and service
Quality outcomes and
supply chain efficiency
5%
Scorecard outcome (% of target)
96%
The outcome of the FY24 Group Performance Scorecard determined by the Board for all ELT members (including the CEO)
was 96%, reflecting that an outcome of 68% was achieved against financial measures and an outcome of 28% 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.
74
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
FY24 Long-term incentive (LTI) plan
The table below outlines the key features of the FY24 LTI.
Features
Approach
Purpose
–
The LTI plan is designed to reward performance in support of the achievement
of the Company’s strategy: targeting profitable, long-term revenue and EPS growth,
which requires appropriate investment.
Participants
–
Participation in the LTI plan is by invitation only, at the sole and absolute discretion of the Board.
–
In FY24, ELT members and selected other 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 2023 to 30 June 2026.
–
There is no retesting of performance if the performance hurdles 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, subject to meeting performance hurdles.
–
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
In accordance with the ASX listing rules, the share price used was the volume weighted average share price
of ordinary shares in the Company based on the ten trading days up to and including 11 October 2023.
Dividend payments
–
No dividends or dividend equivalent payments are provided on performance rights.
Board discretion
–
The Board may forfeit performance rights for fraud, dishonesty, breach of a material obligation or acting
in a manner that brings the Company into disrepute, or if there has been a material misstatement or
omission that results in a restatement of accounts.
The a2 Milk Company 2024 Annual Report
75
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 total external 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 4%,
in each case, from 1 July 2023 to 30 June 2026.
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 4%
Nil
4%
50%
Between 4% and 6%
Pro-rata vesting on a straight-line basis between 50% and 85%
6%
85%
Between 6% and 8%
Pro-rata vesting on a straight-line basis between 85% and 100%
8% and above
100%
Calculation approach
EPS CAGR and Revenue CAGR are derived from the annual report of the Company for the relevant
financial years.
The EPS CAGR and Revenue CAGR performance hurdles have been determined having regard to the
Company’s growth strategy and medium-term financial ambition to grow revenue to NZ$2 billion by FY27 or
later and to target EBITDA margins in the ‘teens’ with year-on-year improvements. The Board considers
the performance hurdles sufficiently challenging to align with shareholder value creation, but still being
motivating for, and viewed as achievable by, senior executives and managers invited to participate in the
LTI Plan. The high end of the Revenue CAGR hurdles would deliver revenue over NZ$2 billion by FY26,
exceeding the Company’s medium-term financial ambition. The EPS CAGR is above the high end of the
Revenue CAGR range to incentivise and promote margin accretion over the term of the plan.
Achieving such performance hurdles would require significant market share gains in the Company’s core
infant milk formula business in the China market which is currently in market value and volume decline, as
well as a significant improvement in Group profitability.
Cessation
of employment,
change of control,
bonus issue
or reorganisation
of capital
–
Subject to the discretion of the Board or unless employment is terminated by the Company other than
for fault, the participant retires or employment ceases due to total and permanent disablement, serious
illness or death, unvested performance rights will be forfeited upon cessation of employment.
–
If performance rights are not subject to forfeiture, the Board may in its discretion reduce the number
of performance rights to reflect the proportion of the vesting period that has elapsed and/or accelerate
vesting.
–
Subject to the discretion of the Board, performance rights may be subject to accelerated vesting if the
Company is subject to a change of control.
–
Adjustments to the number of performance rights, or the number of Company shares to which they
relate, may be made following any bonus issue of Company shares or reorganisation of its capital.
Performance rights granted in FY24
During the year, the Board authorised the grant of 3,069,769 performance rights under the LTI plan in respect of FY24.
Further details on the current LTI plan and previous plans can be found at Note F2 to the financial statements.
Normalisation adjustments
Relevant STI and LTI metrics are adjusted to remove the impact of such 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, impairment charges, acquisitions and
disposals, and capital management. No normalisation adjustments were made to STI and LTI metrics in FY24.
76
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
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$1,934,256 per annum (inclusive of superannuation) in FY24, to be reviewed annually.
For FY25, the Board has decided not to increase David’s base salary, with an incremental change only in superannuation
in line with the change in statutory limits.
STI
On an annual basis, David participates in the Company’s STI plan. For FY24, his STI incentive target is 120% of his FAR, subject
to the achievement of the Group Performance Scorecard and individual performance objectives as determined by the Board
(excluding David). In FY24, 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.
For FY25 and subsequent years, the Board has decided to cap the maximum combined impact of David’s Group Performance
Scorecard outcome and individual performance modifier to apply to his target STI opportunity to 130%. This compares to a
theoretical maximum combined impact of 169% (i.e. 130% x 130%) in FY24 and prior years.
As implemented last year, payment of 25% of the amount awarded to the CEO is deferred as cash for one year.
David’s STI payment in FY24 is determined in accordance with the following:
FAR
$
x
Target STI
opportunity
%
x
FY24 Group
Scorecard result %
(detailed below)
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. Prior to FY24, performance rights issued to David were 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 FY25 LTI plan to shareholders on an advisory basis
at the Annual Meeting in 2024.
Allowance
An allowance of A$10,000 per month (net of tax) is paid to assist David with the cost of his accommodation in Sydney and travel
between Melbourne and Sydney.
Notice period
Generally, resignation by David requires six months’ notice and termination (other than for cause) by the Company requires
twelve months’ notice.
Leave
Five weeks per annum paid annual leave.
Other terms
The agreement also includes standard terms covering expense reimbursement, conflicts of interest, confidentiality, intellectual
property and moral rights, clawbacks and restraints upon termination (which address non-competition, as well as non-solicitation
of employees, customers and suppliers).
The a2 Milk Company 2024 Annual Report
77
Total CEO remuneration earned
The remuneration accrued for David Bortolussi in the financial year was as follows:
Statutory remuneration accounting expense
FY24
A$
FY23
A$
FAR1
1,934,256
1,867,666
Cash STI2
2,228,263
2,129,140
Allowance3
226,416
226,416
LTI4
2,701,108
3,583,205
Other equity5
–
476,748
Total remuneration
7,090,043
8,283,175
1
FY24 base salary was increased by 3.5% vs FY23 with an incremental change in superannuation.
2
No change to CEO STI target levels in FY23 and FY24; 95% and 96% of target awarded in each year respectively, including accrued deferred
component (25%).
3
No change to relocation allowance.
4 FY21 grant was expensed across two years with a higher annual expense rolling off in FY23 (all other grants expensed over three years), and a reduction
of vesting percent assumption in the FY23 and FY24 grants impacting statutory accrued remuneration.
5
All remaining time-based rights vested in FY23.
As noted on page 77, for FY24, 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 96% and
David’s individual performance multiplier is 100%. As a result, a payment in the amount of A$2,228,263 is to be made
to David under the FY24 STI plan representing 96% of target, with 25% to be paid as cash after one year.
Total CEO remuneration received
The remuneration received by David Bortolussi in the financial year is outlined in the table below.
Remuneration received
FY24
A$
FY23
A$
FAR1
1,934,256
1,867,666
STI paid2
1,596,854
2,251,031
Allowance3
226,416
226,416
LTI4
2,249,312
–
Other equity5
–
1,042,795
Total remuneration received
6,006,838
5,387,908
Cash payments
1
FY24 base salary was increased by 3.5% vs FY23 with an incremental change in superannuation.
2
FY23 STI figure reflects the FY22 STI payment made in September 2022. During FY23, the Board revised the Company’s STI plan to include
a 25% deferral of the CEO’s STI for one year. The FY24 figure reflects the FY23 STI payment made in September 2023 with 25% deferred to be paid
in September 2024.
3
No change to relocation allowance.
Vesting of prior year awards (equity)
4 FY21 LTI grant vested in FY24 (August 2023). No LTI grants vested in FY23.
5
All remaining time-based rights vested in FY23.
LTI – granted in FY24
In FY24, 690,066 performance rights vesting in or around August 2026 were granted to David under the Company’s LTI Plan.
The CEO’s FY24 LTI Grant was included as a resolution on an advisory basis at the 2023 Annual Meeting.
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.
78
Building a sustainable growth business
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Corporate governance
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 FY24 Board and Committee fees:
Position
Fees per annum
$
Board of Directors
Chair
375,0001
Member
165,000
Audit and Risk Management Committee
Chair
35,000
Member
16,500
People and Remuneration Committee
Chair
35,000
Member
16,500
Nomination Committee2
Chair
22,000
Member
11,000
1
No additional fees are paid to the Board Chair for Committee roles. From 17 November 2023, the Chair fee was increased from NZD 265,000 to
NZD375,000 per annum.
2
The Nomination Committee was disbanded on 16 November 2023 and no additional Chair or member fees were paid subsequently.
Remuneration paid to non-executive directors of the Company for the year ended 30 June 2024 was as follows:
Committee fees
Board fees
Audit and Risk
Management
People and
Remuneration
Nomination
Total fees
$
$
$
$
$
Pip Greenwood (Chair)1
295,455
6,250
–
8,333
310,038
David Hearn (Chair)2
101,383
–
–
–
101,383
Warwick Every-Burns
165,000
16,500
35,000
–
216,500
Kate Mitchell
165,000
35,000
–
–
200,000
David Wang
165,000
16,500
16,500
–
198,000
Sandra Yu
165,000
16,500
16,500
–
198,000
Total
1,056,838
90,750
68,000
8,333
1,223,921
1
Pip Greenwood was appointed as Chair with effect from 16 November 2023.
2
David Hearn retired on 16 November 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.
Board structure and non-executive fees
Following the retirement of the Deputy Chair and Chair, it was timely to review the Board and Committee structures and fees
upon the appointment of Pip Greenwood to Chair. The People and Remuneration Committee instructed an expert consultant
to undertake an independent review of external market data (a2MC ASX and NZX peer group) to assess fees for Chair,
Non-Executive Director (NED) and Committee chairs and members.
It was determined that Board committees could be simplified to improve efficiency and reduce the number of Directors sitting
on the Audit and Risk Management Committee. The Nominations Committee was disbanded and therefore no fees were attributed
to Nomination Committee membership after the review.
The expert review informed the People and Remuneration Committee’s assessment of the appropriate Chair fee which was
reviewed and approved by the Board (excluding Pip Greenwood).
Director Minimum Shareholding Requirement
A Minimum Shareholding Requirement (Director MSR) Policy applies to all directors. The purpose of this Director 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.
The a2 Milk Company 2024 Annual Report
79
Directors’ approval of the
financial statements
81
Independent auditor’s report
82
Consolidated statement
of comprehensive income
88
Consolidated statement
of changes in equity
89
Consolidated statement
of financial position
91
Consolidated statement
of cash flows
92
Notes to the financial statements
93
FINANCIAL
STATEMENTS
80
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Financial statements
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 2024.
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 2024 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 liabilities to which they are, or may
become, subject because of the Deed of Cross Guarantee between the Company
and those Group entities pursuant to ASIC Corporations (Wholly-owned Companies)
Instrument 2016/785.
Pip Greenwood
David Bortolussi
Chair
Managing Director and CEO
18 August 2024
Directors’ approval of the financial statements
for the year ended 30 June 2024
The a2 Milk Company 2024 Annual Report
81
Independent auditor’s report
for the year ended 30 June 2024
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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 88 to 140, which comprise the consolidated statement
of financial position of the Group as at 30 June 2024, 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 material accounting policy information.
In our opinion, the consolidated financial statements on pages 88 to 140 present fairly, in all material
respects, the consolidated financial position of the Group as at 30 June 2024 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.
82
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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
How our audit addressed the key audit matter
Revenue and associated trade receivables are
recognised net of rebates and promotional
allowances paid or 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.
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.
The a2 Milk Company 2024 Annual Report
83
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Information other than the financial statements and auditor’s report
The directors of the Company are responsible for the annual report, which includes information other
than the consolidated financial statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained during the audit, or otherwise
appears to be materially misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the 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/. 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
18 August 2024
84
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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 Assurance Report to the Management and Directors of The
a2 Milk Company Limited
What we assured
Ernst & Young (‘EY',’we’) were engaged by The a2 Milk
Company (‘a2MC’) to provide reasonable assurance
over the Subject Matter disclosed in a2MC’s 2024
Annual Report (the ‘Report’) for the year ended 30
June 2024 in accordance with the noted Criteria, as
defined in the following table:
Reasonable Assurance
Subject Matter
Criteria
Planet
Total Scope 1 emissions:
13,412 tCO2-e
a2’s own publicly
disclosed criteria as
outlined on page 38
of the Report
Total Scope 2 emissions as
calculated using the location-
based method: 4,507 tCO2-e
Total Scope 2 emissions as
calculated using the market-
based method: 149 tCO2-e
In addition, we were engaged by a2MC to provide
limited assurance over the following subject matter in
accordance with the noted Criteria, as defined in the
following table:
Limited Assurance Subject
Matter
Criteria
Planet
Total Scope 3 emissions:
440,392 tCO2-e
a2’s own publicly
disclosed criteria as
outlined on page 38
of the Report
Total water usage: 314,071
‘000 litres
a2’s own publicly
disclosed criteria as
informed by the
Global Reporting
Water efficiency: 1.6
litres/litre of milk
Limited Assurance Subject
Matter
Criteria
Waste water diverted to
beneficial land application:
1,133,900 litres
Initiative (GRI)
Standards
Waste to landfill: 68 tonnes
Waste diversion: 94.7 %
Total electricity consumption:
42,600,000 kWh
Proportion of packaging that
is fully recyclable: 83.3%
People
Gender diversity – total
workforce that are female:
51%
a2’s own publicly
disclosed criteria as
informed by the GRI
Standards
Product and cash donations:
$2.97m NZD
We also reviewed a2MC’s reporting with reference to
the GRI Standards (2021).
Other than as described in the preceding paragraphs,
which set out the scope of our engagement, we did
not perform assurance procedures on the remaining
information included in the Report, and accordingly,
we do not express an opinion or conclusion on this
information.
Our Conclusions:
Reasonable assurance: In our opinion, the Reasonable Assurance Subject Matter for the year ended 30 June
2024 is prepared, in all material respects, in accordance with the Criteria defined below.
Limited assurance: 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 Limited Assurance Subject Matter for the year ended
30 June 2024 has not been prepared, in all material respects, in accordance with the Criteria defined below.
Independent ESG Assurance Report
for the year ended 30 June 2024
The a2 Milk Company 2024 Annual Report
85
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Key responsibilities
a2MC’s responsibility
a2MC’s management is responsible for selecting the
Criteria, and ensuring the Subject Matter is prepared,
in all material respects, in accordance with that
Criteria. 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.
EY’s responsibility and independence
For the limited assurance engagement, our
responsibility is to express a conclusion on the Limited
Assurance Subject Matter based on the evidence we
have obtained. For the reasonable assurance
engagement, our responsibility is to express an
opinion on the Reasonable Assurance Subject Matter
based on the evidence we have obtained.
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.
EY 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.
Our approach to conducting the assurance
procedures
We conducted our assurance procedures 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 (‘ASAE3000’), and
where relevant Assurance Engagements on
Greenhouse Gas Statements (‘ASAE3410’).
For the reasonable assurance engagement, these
standards require that we plan and perform our
engagement to obtain reasonable assurance about
whether, in all material respects, the Reasonable
Assurance Subject Matter is presented in accordance
with the Criteria, and to issue a report.
For the limited assurance engagement, these
standards require 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 Limited Assurance Subject Matter is
not prepared, in all material respects, in accordance
with the Criteria, and to issue a report.
The nature, timing and extent of the assurance
procedures selected depend on our judgement,
including an assessment of the risk of material
misstatement, whether due to fraud or error.
Description of assurance procedures performed
A limited assurance engagement consists of making
enquiries, primarily of persons responsible for
preparing the Limited Assurance Subject Matter and
related information and applying analytical and other
appropriate procedures.
The Limited Assurance procedures we performed were
based on our professional judgement and included, but
were not limited to:
► Conducted interviews with 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
► Assessed 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 assess 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.
Additional reasonable assurance procedures we
performed were based on professional judgement and
included, but were not limited to:
► For our reasonable assurance of Scope 1 and
Scope 2 greenhouse gas emissions, on a sample
basis, agreed underlying data to source
information to assess completeness of
performance data, which included invoices, system
extracts and other records.
We believe that the evidence obtained is sufficient and
appropriate to provide a basis for our limited
assurance conclusion and reasonable assurance
opinion.
86
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Inherent limitations
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.
The greenhouse gas emissions quantification process
is subject to scientific uncertainty, which arises
because of incomplete scientific knowledge about the
measurement of greenhouse gases. Additionally,
greenhouse gas procedures are subject to estimation
and measurement uncertainty resulting from the
measurement and calculation processes used to
quantify greenhouse gas emissions within the bounds
of existing scientific knowledge.
Additional inherent limitations – limited assurance
scope
Procedures performed in a limited assurance
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 limited assurance 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.
Our procedures did not include testing controls or
performing procedures relating to checking
aggregation or calculation of data within IT systems.
Additional inherent limitations – reasonable
assurance scope
While our procedures performed for our reasonable
assurance engagement are of a higher level of
assurance, due to the use of sampling techniques, it is
not a guarantee that it will always detect material
misstatements.
Other matters
Our report does not extend to any disclosures or
assertions made by a2MC relating to future
performance plans and/or strategies disclosed in
a2MC’s 2024 Annual 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
Partner
Ernst & Young
Sydney, Australia
18 August 2024
The a2 Milk Company 2024 Annual Report
87
Note
2024
$’000
2023
$’000
Sales
B1
1,673,323
1,591,088
Cost of sales
(906,694)
(851,925)
Gross margin
766,629
739,163
Other revenue
B1
2,128
1,782
Distribution expenses
(50,184)
(50,832)
Marketing expenses
(280,098)
(260,229)
Administrative and other expenses
(236,234)
(228,663)
Operating profit
202,241
201,221
Interest income
40,396
26,733
Finance costs
B4
(4,497)
(5,092)
Net finance income
35,899
21,641
Profit before tax
238,140
222,862
Income tax expense
B6
(84,258)
(78,021)
Profit for the year
153,882
144,841
Profit/(loss) for the year attributable to:
Owners of the Company
167,577
155,638
Non-controlling interests
(13,695)
(10,797)
153,882
144,841
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation profit/(loss)
939
(6,448)
Cash flow hedges fair value profit
3,721
12,368
Items not to be reclassified to profit or loss:
Listed investment fair value loss
C7
(62,211)
(63,295)
Total other comprehensive loss, net of tax
(57,551)
(57,375)
Total other comprehensive (loss)/income attributable to:
Owners of the Company
(57,862)
(58,270)
Non-controlling interests
311
895
(57,551)
(57,375)
Total comprehensive income
96,331
87,466
Total comprehensive income/(loss) attributable to:
Owners of the Company
109,715
97,368
Non-controlling interests
(13,384)
(9,902)
96,331
87,466
Earnings per share
Basic (cents per share)
B5
23.19
21.23
Diluted (cents per share)
B5
23.06
21.13
The accompanying notes form part of these financial statements.
Consolidated statement of comprehensive income
for the year ended 30 June 2024
88
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Consolidated statement of changes in equity
for the year ended 30 June 2024
Attributable to owners of the Company
Year ended
30 June 2024
Foreign currency
translation reserve
$’000
Fair value revaluation
reserve
$’000
Employee equity settled
payments reserve
$’000
Treasury shares reserve
$’000
Hedging reserve
$’000
Total reserves
$’000
Retained earnings
$’000
Share capital
$’000
Total
$’000
Non-controlling
interests
$’000
Total equity
$’000
Balance 1 July 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
Profit after tax for
the period
–
–
–
–
–
–
167,577
–
167,577
(13,695)
153,882
Foreign currency
translation differences
– foreign operations
939
–
–
–
–
939
–
–
939
–
939
Changes in cash flow
hedges taken to equity
–
–
–
–
(882)
(882)
–
–
(882)
(85)
(967)
Cash flow hedges
reclassified to profit
or loss
–
–
–
–
5,257
5,257
–
–
5,257
396
5,653
Listed investment – fair
value movement
–
(62,211)
–
–
–
(62,211)
–
–
(62,211)
–
(62,211)
Income tax
–
–
–
–
(965)
(965)
–
–
(965)
–
(965)
Total comprehensive
income for the period
939
(62,211)
–
–
3,410
(57,862)
167,577
–
109,715
(13,384)
96,331
Transactions with
owners in their capacity
as owners:
Employee withholding
tax payments
–
–
(235)
–
–
(235)
–
–
(235)
–
(235)
Treasury shares
transferred
–
–
(4,896)
4,896
–
–
–
–
–
–
–
Share-based payments
–
–
10,727
–
–
10,727
–
–
10,727
–
10,727
Income tax
–
–
449
–
–
449
–
–
449
–
449
Total transactions
with owners
–
–
6,045
4,896
–
10,941
–
–
10,941
–
10,941
Balance 30 June 2024
(5,841) (279,027)
67,292
(8,706)
1,882
(224,400) 1,490,776
100 1,266,476
(9,703) 1,256,773
The accompanying notes form part of these financial statements.
The a2 Milk Company 2024 Annual Report
89
Attributable to owners of the Company
Year ended
30 June 2023
Foreign currency
translation reserve
$’000
Fair value revaluation
reserve
$’000
Employee equity settled
payments reserve
$’000
Treasury shares reserve
$’000
Hedging reserve
$’000
Total reserves
$’000
Retained earnings
$’000
Share capital
$’000
Total
$’000
Non-controlling
interests
$’000
Total equity
$’000
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
–
–
–
–
–
–
155,638
–
155,638
(10,797)
144,841
Foreign currency
translation differences
– foreign operations
(6,065)
–
–
–
–
(6,065)
–
–
(6,065)
–
(6,065)
Changes in cash flow
hedges taken to equity
–
–
–
–
(2,559)
(2,559)
–
–
(2,559)
(167)
(2,726)
Cash flow hedges
reclassified to profit
or loss
–
–
–
–
17,449
17,449
–
–
17,449
1,062
18,511
Listed investment –
fair value movement
–
(63,295)
–
–
–
(63,295)
–
–
(63,295)
–
(63,295)
Income tax
(383)
–
–
–
(3,417)
(3,800)
–
–
(3,800)
–
(3,800)
Total comprehensive
income for the period
(6,448)
(63,295)
–
–
11,473
(58,270)
155,638
–
97,368
(9,902)
87,466
Transactions with
owners in their capacity
as owners:
Share buyback
–
–
–
–
–
–
–
(149,057) (149,057)
–
(149,057)
Treasury shares
transferred
–
–
(2,196)
2,196
–
–
–
–
–
–
–
Share-based payments
–
–
17,132
–
–
17,132
–
–
17,132
–
17,132
Total transactions
with owners
–
–
14,936
2,196
–
17,132
–
(149,057) (131,925)
–
(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.
Consolidated statement of changes in equity
for the year ended 30 June 2024
90
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Consolidated statement of financial position
as at 30 June 2024
Note
2024
$’000
2023
$’000
Assets
Current assets
Cash and term deposits
D3
968,943
802,234
Trade and other receivables
C1
78,070
79,216
Prepayments
52,545
45,682
Inventories
C2
179,648
193,440
Other financial assets
C7
8,739
1,536
Total current assets
1,287,945
1,122,108
Non-current assets
Property, plant and equipment
C4
231,433
245,216
Right-of-use assets
D5
25,921
17,349
Investment property
C5
30,845
17,927
Intangible assets
C6
111,093
108,419
Other financial assets
C7
13,509
72,078
Deferred tax assets
B6
34,129
28,617
Total non-current assets
446,930
489,606
Total assets
1,734,875
1,611,714
Liabilities
Current liabilities
Trade and other payables
C3
347,569
313,212
Lease liabilities
D5
5,598
4,181
Loans and borrowings
D6
–
15,000
Income tax payable
57,384
43,314
Other financial liabilities
C8
6,223
3,501
Total current liabilities
416,774
379,208
Non-current liabilities
Trade and other payables
C3
532
423
Lease liabilities
D5
22,732
15,309
Loans and borrowings
D6
37,890
67,038
Other financial liabilities
C8
174
235
Total non-current liabilities
61,328
83,005
Total liabilities
478,102
462,213
Net assets
1,256,773
1,149,501
Equity
Share capital
D7
100
100
Retained earnings
1,490,776
1,323,199
Reserves
D8
(224,400)
(177,479)
Total equity attributable to owners of the Company
1,266,476
1,145,820
Non-controlling interests
(9,703)
3,681
Total equity
1,256,773
1,149,501
The accompanying notes form part of these financial statements.
The a2 Milk Company 2024 Annual Report
91
Note
2024
$’000
2023
$’000
Cash flows from operating activities
Receipts from customers
1,676,703
1,619,580
Payments to suppliers and employees
(1,382,247)
(1,492,140)
Interest received
40,353
22,420
Interest paid
(3,439)
(3,663)
Taxes paid
(75,626)
(34,914)
Net cash inflow from operating activities
D4
255,744
111,283
Cash flows from investing activities
Payments for property, plant and equipment
(17,020)
(10,069)
Payments for investment property
C5
(14,405)
(3,535)
Payments for intangible assets
C6
(3,506)
(338)
Investment in unlisted shares
C7
(2,205)
–
Payments for term deposits
(750,000)
(450,000)
Receipts from term deposits
750,000
450,000
Net cash outflow from investing activities
(37,136)
(13,942)
Cash flows from financing activities
Payments for share buyback
–
(149,057)
Payments of lease principal
D5
(4,809)
(3,578)
Net repayments of borrowings
(45,000)
(25,794)
Net cash outflow from financing activities
(49,809)
(178,429)
Net increase/(decrease) in cash and short-term deposits
168,799
(81,088)
Cash and short-term deposits at the beginning of the year
352,234
437,308
Effect of exchange rate changes on cash
(2,090)
(3,986)
Cash and short-term deposits at the end of the year
D3
518,943
352,234
The accompanying notes form part of these financial statements.
Consolidated statement of cash flows
for the year ended 30 June 2024
92
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Contents
Page
A
Basis of preparation
94
B
Group performance
96
B1
Operating segments
96
B2
Revenue
99
B3
Expenses
100
B4
Finance costs
100
B5
Earnings per share (EPS)
101
B6
Income taxes
101
C
Operating assets and liabilities
105
C1
Trade and other receivables
105
C2
Inventories
105
C3
Trade and other payables
106
C4
Property, plant and equipment
107
C5
Investment property
109
C6
Intangible assets
111
C7
Other financial assets
114
C8
Other financial liabilities
115
D
Financial risk and capital management
116
D1
Financial risk management
116
D2
Capital management
124
D3
Cash and term deposits
124
D4
Cash flow information
125
D5
Leases
126
D6
Loans and borrowings
129
D7
Share capital
130
D8
Nature and purpose of reserves
131
D9
Capital expenditure commitments
132
D10
Contingent liabilities
132
E
Group structure
133
E1
Consolidated entities
133
E2
Deed of cross guarantee
134
F
Other disclosures
136
F1
Related party transactions
136
F2
Share-based payments
137
F3
Auditor’s remuneration
140
F4
Subsequent events
140
Notes to the financial statements
The a2 Milk Company 2024 Annual Report
93
Basis of preparation
for the year ended 30 June 2024
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 2024 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 an 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 18 August 2024.
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 and unlisted 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.
Material 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.
94
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Judgements, estimates and assumptions
The preparation of financial statements in conformity with NZ
IFRS requires management to make judgements, estimates and
assumptions including climate-related risks and opportunities.
–
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 B6: Income taxes – Application of base erosion and
profit shifting (BEPS) Pillar Two Model Rules
–
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
–
The Group considers the impact of climate change when
making judgements, estimates and assumptions. This
includes a wide range of possible impacts on the Group due
to both physical and transitional risks and how these may
impact the Group.
Changes in material accounting policies
The Group has applied the following 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 2024.
Material accounting policy information
The Group has adopted Disclosure of Accounting Policies
(Amendments to NZ IAS 1 and IFRS Practice Statement 2)
from 1 July 2023. The amendments require disclosure of
material accounting policy information, instead of significant
accounting policies. The amendments also provide guidance
on the application of materiality to disclosure of accounting
policies, as well as the disclosure of entity-specific accounting
policy information that is more relevant for the users’
understanding of the financial statements than generic
information. The amendments did not result in any changes
to the accounting policies.
BEPS Pillar Two Model Rules
The Group has adopted the International Tax Reform – Pillar
Two Model Rules – Amendments to NZ IAS 12 approved by the
New Zealand External Reporting Board from the issuance date
of 10 August 2023. The amendments provide a temporary
mandatory exception from deferred tax accounting, which
applies retrospectively and require new disclosures in the
annual financial statements in relation to the implementation of
the Pillar Two Model Rules published by the Organisation for
Economic Co-operation and Development. The Group has
applied the exception with immediate effect. Further
information on the position of the Group as at 30 June 2024 is
provided in Note B6. Income taxes.
New standards and interpretations not yet adopted
There are no new standards and interpretations that are issued,
but not yet mandatorily effective as at 30 June 2024, that are
expected to have a material impact on the Group in current or
future reporting periods.
The a2 Milk Company 2024 Annual Report
95
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 it has four reportable operating
segments as follows:
–
The China and Other Asia segment receives external
revenue from the sale of infant milk formula, other
nutritional products and milk.
–
The Australia and New Zealand segment receives external
revenue from the sale of infant milk formula, milk and other
nutritional products along with rent, royalty and licence fee
income.
–
The USA segment receives external revenue from the sale of
milk, infant milk formula and from licence fee income.
–
The Mataura Valley Milk segment receives external
revenue from the manufacturing and sale of nutritional
and ingredients 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.
Group performance
for the year ended 30 June 2024
96
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
B1. Operating segments (continued)
2024
China and
Other Asia
$’000
Australia
and New
Zealand
$’000
USA
$’000
Mataura
Valley Milk
$’000
Eliminations
$’000
Total
$’000
Consolidated sales
1,143,069
315,531
113,297
101,426
–
1,673,323
Other revenue
–
1,768
360
–
–
2,128
Total external revenue
1,143,069
317,299
113,657
101,426
–
1,675,451
Inter-segment revenue
–
–
–
34,996
(34,996)
–
Reportable segment revenue
1,143,069
317,299
113,657
136,422
(34,996)
1,675,451
Reportable segment results
(Segment EBITDA)
290,120
62,987
(15,463)
(20,457)
(467)
316,720
Corporate EBITDA
(82,376)
Group EBITDA
234,344
Interest income
40,396
Interest expense
(4,401)
Depreciation and amortisation
(32,199)
Income tax expense
(84,258)
Consolidated profit after tax
153,882
2023
China and
Other Asia
$’000
Australia
and New
Zealand
$’000
USA
$’000
Mataura
Valley Milk
$’000
Eliminations
$’000
Total
$’000
Consolidated sales
1,002,164
370,249
104,731
113,944
–
1,591,088
Other revenue
–
1,445
337
–
–
1,782
Total external revenue
1,002,164
371,694
105,068
113,944
–
1,592,870
Inter-segment revenue
–
–
–
32,270
(32,270)
–
Reportable segment revenue
1,002,164
371,694
105,068
146,214
(32,270)
1,592,870
Reportable segment results
(Segment EBITDA)
254,055
93,506
(23,311)
(26,486)
–
297,764
Corporate EBITDA
(78,466)
Group EBITDA
219,298
Interest income
26,733
Interest expense
(4,972)
Depreciation and amortisation
(18,197)
Income tax expense
(78,021)
Consolidated profit after tax
144,841
The a2 Milk Company 2024 Annual Report
97
B1. Operating segments (continued)
Other segment information
2024
China and
Other Asia
$’000
Australia
and New
Zealand
$’000
USA
$’000
Mataura
Valley Milk
$’000
Corporate
$’000
Total
$’000
Additions to non-current assets
2,249
17,478
20
16,077
6,492
42,316
Depreciation and amortisation
2,346
4,845
535
19,288
5,185
32,199
2023
Additions to non-current assets
5,118
7,716
17
6,289
7,197
26,337
Depreciation and amortisation
1,885
4,168
564
9,006
2,574
18,197
Geographical information
2024
$’000
2023
$’000
Revenue from external customers based on the location of the customer
China
1,125,608
985,257
Australia
307,622
355,841
USA
113,657
105,068
New Zealand
111,102
129,798
Other
17,462
16,906
1,675,451
1,592,870
Non-current assets based on the geographical location of assets¹
New Zealand
234,917
234,640
Australia
55,220
44,535
China
4,877
4,982
USA
1,895
2,407
296,909
286,564
1 Non-current assets exclude goodwill, financial instruments and deferred tax assets.
Group performance
for the year ended 30 June 2024
98
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
B2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical location (reportable segments) and major product types.
2024
China and
Other Asia
$’000
Australia and
New Zealand
$’000
USA
$’000
Mataura Valley
Milk
$’000
Total
$’000
Infant milk formula:
China label
612,344
–
–
–
612,344
English and other labels¹
447,834
98,524
824
–
547,182
Liquid milk²
–
190,168
112,473
–
302,641
Other nutritionals³
82,891
26,839
–
–
109,730
Ingredients
–
–
–
101,426
101,426
Other revenue
–
1,768
360
–
2,128
1,143,069
317,299
113,657
101,426
1,675,451
2023
China and
Other Asia
$’000
Australia and
New Zealand
$’000
USA
$’000
Mataura Valley
Milk
$’000
Total
$’000
Infant milk formula:
China label
559,336
–
–
–
559,336
English and other labels¹
386,226
162,508
–
–
548,734
Liquid milk²
–
184,094
104,731
–
288,825
Other nutritionals³
56,602
23,647
–
–
80,249
Ingredients
–
–
–
113,944
113,944
Other revenue
–
1,445
337
–
1,782
1,002,164
371,694
105,068
113,944
1,592,870
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 Excludes liquid milk products (plain and fortified) exported to China and Other Asia markets.
3 Comprises powdered milk products (plain and fortified), and liquid milk products (plain and fortified) exported to China and Other Asia markets.
The a2 Milk Company 2024 Annual Report
99
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 and retail customers; and manufactures nutritional and ingredients 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. Refer to Note C3 for details of customer
contract liability balances.
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
2024
$’000
2023
$’000
Profit before income tax includes the following significant items:
Salary and wage costs
103,384
98,366
Equity settled share-based payments (refer to note F2)
10,727
17,132
Directors’ fees
1,203
1,319
Bad and doubtful debts recovery
(43)
(78)
Depreciation and amortisation
32,199
18,197
Net foreign exchange losses/(gains)
2,436
(8,853)
Cash flow hedge losses
5,653
18,511
B4. Finance costs
2024
$’000
2023
$’000
Interest expense – lease liabilities
1,493
640
Interest expense
2,908
4,332
Finance costs
96
120
4,497
5,092
Group performance
for the year ended 30 June 2024
100
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
B5. Earnings per share (EPS)
2024
2023
Profit attributable to members of the Company used in calculating basic and diluted EPS ($’000)
167,577
155,638
Weighted average number of ordinary shares (‘000) for basic EPS
722,777
733,065
Effect of dilution due to performance rights (‘000)
3,784
3,610
Weighted average number of ordinary shares (‘000) for diluted EPS
726,561
736,675
Earnings per share
Basic EPS (cents)
23.19
21.23
Diluted EPS (cents)
23.06
21.13
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
2024
$’000
2023
$’000
Income tax recognised in profit or loss
Current:
Current year
97,862
88,947
Adjustment for prior years
(7,576)
(7,999)
Deferred:
Temporary differences
(7,617)
(7,035)
Adjustment for prior years
1,589
4,108
Total tax expense
84,258
78,021
The prima facie income tax on pre-tax accounting profit from operations reconciles to:
Accounting profit before income tax
238,140
222,862
Income tax expense calculated at 28% (2023: 28%)
66,679
62,401
Difference in income tax rates:
Australia 30% (2023: 30%), USA 27% (2023: 25%), and China 25% (2023: 25%)
2,368
2,780
Non-deductible expenses and non-assessable income
625
2,687
Prior period adjustment to tax expense
(5,987)
(3,891)
Unutilised foreign tax credits
4,944
3,559
Deferred tax asset not recognised
15,629
10,485
Total tax expense
84,258
78,021
Income tax recognised directly in equity
Current tax
–
–
Deferred tax
516
41
Tax expense in equity
516
41
The a2 Milk Company 2024 Annual Report
101
B6. Income taxes (continued)
Deferred tax balances
2024
Opening
balance
$’000
Charge to
comprehensive
income
$’000
Charge to
equity
$’000
Closing
balance
$’000
Gross deferred tax assets
Patents
77
(8)
–
69
Provisions and accrued expenses
22,551
7,576
–
30,127
Tax losses
122
(76)
–
46
Property, plant and equipment
1,999
(773)
–
1,226
Employee share scheme
3,076
758
449
4,283
Hedging instruments
342
-
(965)
(623)
Other
450
(1,449)
–
(999)
Net deferred tax
28,617
6,028
(516)
34,129
Charge to profit or loss
6,028
Charge to other comprehensive income
–
6,028
2023
Opening
balance
$’000
Charge to
comprehensive
income
$’000
Charge to
equity
$’000
Closing
balance
$’000
Gross deferred tax assets
Patents
111
(34)
–
77
Provisions and accrued expenses
22,235
316
–
22,551
Tax losses
193
(71)
–
122
Property, plant and equipment
29
1,970
–
1,999
Employee share scheme
1,112
1,964
–
3,076
Hedging instruments
–
–
342
342
Other
2,051
(1,601)
–
450
Net deferred tax
25,731
2,544
342
28,617
Charge to profit or loss
2,927
Charge to other comprehensive income
(383)
2,544
Group performance
for the year ended 30 June 2024
102
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
B6. Income taxes (continued)
Tax losses
The Group companies have the following estimated gross tax losses at balance date not recognised:
2024
$’000
2023
$’000
USA
99,938
100,066
New Zealand
232,760
207,357
332,698
307,423
Imputation and franking credits
The Company is a New Zealand company which has elected to maintain an Australian franking credit account. The imputation
credit and franking credit balances represent the sum of the imputation credit and franking credit account balances of all
Group companies stated on an accrual basis. The ability to use the imputation and franking credits is dependent upon the ability
of Group companies to declare dividends. The franking credit account balance is stated in AUD.
Imputation and franking credits available within the Group, and ultimately available to the shareholders of the Company as at
year end:
2024
$’000
2023
$’000
Imputation credits
49,725
49,310
Franking credits (stated in Australian dollars)
587,562
517,273
The a2 Milk Company 2024 Annual Report 103
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.
BEPS Pillar Two Model Rules
Under the Pillar Two Model Rules, the Group may be required to pay a top-up tax if the effective tax rate per jurisdiction
(calculated using a prescribed approach) is below the minimum rate of 15%. The Group operates in multiple jurisdictions,
some of which have enacted or substantively enacted tax legislation to implement the Pillar Two Model Rules from a date
commencing on or after 1 July 2024. As the Pillar Two Model Rules in respect of those jurisdictions do not apply to the
financial reporting period ended 30 June 2024, there is no current tax impact in the Group’s financial statements for the
year ended 30 June 2024. The Group has applied the temporary mandatory exception from deferred tax accounting in
respect of the Pillar Two Model Rules and will account for any top-up tax liabilities arising from the application of the
rules as a current tax when it is incurred. The Group is currently assessing the potential impact of the Pillar Two Model
Rules when they become effective.
Group performance
for the year ended 30 June 2024
104
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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
2024
$’000
2023
$’000
Trade receivables from contracts with customers
50,726
57,731
Allowance for expected credit losses
–
(45)
Goods and services tax
17,579
10,699
Other receivables
9,765
10,831
78,070
79,216
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
2024
$’000
2023
$’000
Raw materials
29,783
26,727
Finished goods
149,865
166,713
Total inventories at the lower of cost and net realisable value
179,648
193,440
At year end $9,623,000 (2023: $10,964,000) was recognised as an expense in cost of sales for inventories written down or
written off.
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, inventory condition and economic conditions may
impact these estimations in future periods.
Operating assets and liabilities
for the year ended 30 June 2024
The a2 Milk Company 2024 Annual Report 105
C3. Trade and other payables
2024
$’000
2023
$’000
Current
Trade payables
83,865
54,719
Rebates and promotional allowances
107,848
104,707
Accrued charges
130,222
119,698
Employee entitlements
25,338
26,601
Customer contract liabilities
296
7,487
347,569
313,212
Non-current
Employee entitlements
532
423
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.
Variable consideration such as rebates are offset against the related revenue recognised.
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. The amount of $7,487,000 recognised in customer
contract liabilities at 30 June 2023 was recognised as revenue in the year ended 30 June 2024. Remaining performance obligations
at 30 June 2024 have an original expected duration of one year or less.
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 as the
present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to
the reporting date.
Operating assets and liabilities
for the year ended 30 June 2024
106
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
C4. Property, plant and equipment
2024
Land
$’000
Buildings
$’000
Office &
computer
$’000
Furniture &
fittings
$’000
Leasehold
improvements
$’000
Plant &
equipment
$’000
Total
$’000
Carrying amount 1 July 2023
8,763
48,960
1,734
585
2,498
182,676
245,216
Additions
–
3
904
527
1,129
8,032
10,595
Disposals
–
–
(7)
–
–
–
(7)
Depreciation
–
(2,607)
(656)
(417)
(2,359)
(18,393)
(24,432)
Net foreign currency
exchange differences
–
–
(2)
14
(15)
64
61
Carrying amount 30 June 2024
8,763
46,356
1,973
709
1,253
172,379
231,433
Cost
8,763
51,430
5,966
1,872
7,157
215,383
290,571
Accumulated depreciation
–
(5,074)
(3,993)
(1,163)
(5,904)
(43,004)
(59,138)
Carrying amount 30 June 2024
8,763
46,356
1,973
709
1,253
172,379
231,433
2023
Land
$’000
Buildings
$’000
Office &
computer
$’000
Furniture &
fittings
$’000
Leasehold
improvements
$’000
Plant &
equipment
$’000
Total
$’000
Carrying amount 1 July 2022
8,763
50,183
2,360
733
3,541
174,967
240,547
Additions
–
67
398
34
3
16,026
16,528
Disposals
–
–
(31)
–
–
–
(31)
Depreciation
–
(1,290)
(1,012)
(177)
(1,017)
(8,111)
(11,607)
Net foreign currency
exchange differences
–
–
19
(5)
(29)
(206)
(221)
Carrying amount 30 June 2023
8,763
48,960
1,734
585
2,498
182,676
245,216
Cost
8,763
51,427
5,071
1,331
6,043
207,287
279,922
Accumulated depreciation
–
(2,467)
(3,337)
(746)
(3,545)
(24,611)
(34,706)
Carrying amount 30 June 2023
8,763
48,960
1,734
585
2,498
182,676
245,216
The a2 Milk Company 2024 Annual Report 107
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
5-10 years
Leasehold improvements
2-10 years
Plant and equipment
2-50 years
During the year, the Group revised the estimated useful life of its coal-fired boiler (included in plant and equipment) situated at
Mataura Valley Milk Limited (MVM) due to the successful installation of a high-pressure electrode boiler (HPEB) which operates on
100% certified renewable energy. With the HPEB providing all the required steam needs of MVM, it was determined during the year
the remaining useful life for the coal-fired boiler will end during the first half of the 2025 financial year. The depreciation expense
was adjusted prospectively resulting in an additional depreciation expense of $10.0 million recorded in cost of sales for the year
ended 30 June 2024 and $5.1 million that will be recorded in cost of sales for the year ended 30 June 2025.
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.
Operating assets and liabilities
for the year ended 30 June 2024
108
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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.
2024
Land
$’000
Buildings
$’000
Plant &
equipment
$’000
Work in
progress
$’000
Total
$’000
Carrying amount 1 July 2023
483
4,329
8,165
4,950
17,927
Additions
–
–
–
14,405
14,405
Depreciation
–
(330)
(1,327)
–
(1,657)
Net foreign currency exchange differences
2
15
20
133
170
Carrying amount 30 June 2024
485
4,014
6,858
19,488
30,845
Cost
485
5,306
11,488
19,488
36,767
Accumulated depreciation
–
(1,292)
(4,630)
–
(5,922)
Carrying amount 30 June 2024
485
4,014
6,858
19,488
30,845
2023
Land
$’000
Buildings
$’000
Plant &
equipment
$’000
Work in
progress
$’000
Total
$’000
Carrying amount 1 July 2022
498
4,568
9,177
1,420
15,663
Additions
–
–
–
3,535
3,535
Depreciation
–
(285)
(792)
–
(1,077)
Net foreign currency exchange differences
(15)
46
(220)
(5)
(194)
Carrying amount 30 June 2023
483
4,329
8,165
4,950
17,927
Cost
483
5,291
11,468
4,950
22,192
Accumulated depreciation
–
(962)
(3,303)
–
(4,265)
Carrying amount 30 June 2023
483
4,329
8,165
4,950
17,927
Profit arising from investment property
2024
$’000
2023
$’000
Rental income
1,160
1,152
The a2 Milk Company 2024 Annual Report 109
C5. Investment property (continued)
Future minimum rentals receivable under operating lease
2024
$’000
2023
$’000
Not longer than 1 year
1,774
1,144
Longer than 1 year and not longer than 5 years
10,084
4,578
Longer than 5 years
17,122
16,975
Total undiscounted lease payments to be received
28,980
22,697
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 $32,200,000 based on a capitalisation of rent valuation
approach, adopting a capitalisation rate of 7.5%. Directors consider that this calculation represents a reasonable approximation
of fair value as at 30 June 2024.
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.
Operating assets and liabilities
for the year ended 30 June 2024
110
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
C6. Intangible assets
2024
Patents &
Trademarks
$’000
Other
$’000
Goodwill
$’000
Total
$’000
Carrying amount 1 July 2023
4,912
1,160
102,347
108,419
Additions
–
3,506
–
3,506
Disposals
–
(60)
–
(60)
Amortisation
(67)
(740)
–
(807)
Net foreign currency exchange differences
–
(1)
36
35
Carrying amount 30 June 2024
4,845
3,865
102,383
111,093
Cost
5,590
8,592
102,383
116,565
Accumulated amortisation and impairment
(745)
(4,727)
–
(5,472)
Carrying amount 30 June 2024
4,845
3,865
102,383
111,093
2023
Patents &
Trademarks
$’000
Other
$’000
Goodwill
$’000
Total
$’000
Carrying amount 1 July 2022
4,788
2,066
102,468
109,322
Additions
158
180
–
338
Amortisation
(34)
(1,073)
–
(1,107)
Net foreign currency exchange differences
–
(13)
(121)
(134)
Carrying amount 30 June 2023
4,912
1,160
102,347
108,419
Cost
5,590
5,147
102,347
113,084
Accumulated amortisation and impairment
(678)
(3,987)
-
(4,665)
Carrying amount 30 June 2023
4,912
1,160
102,347
108,419
Trademarks are allocated to the following cash-generating units (CGUs) for the purpose of impairment testing: Australia and New
Zealand $318,000 (2023: $318,000); China and Other Asia $3,503,000 (2023: $3,503,000); USA $174,000 (2023: $174,000).
During the year the total value of research and development costs expensed was $4,540,000 (2023: $6,307,000).
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. Other includes software and product development costs.
Patents
Patents are considered to have a finite life and are amortised on a straight-line basis over the lifetime of the patent.
Trademarks
Trademarks are not subject to amortisation as they are considered to have an indefinite life and are tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Software
Software is amortised on a straight-line basis over two to three 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.
Product development costs
Product development costs are capitalised when these costs are expected to generate future economic benefits, the underlying
products are technically feasible with adequate resources to complete, there is an intention to complete and use or sell the
products and the costs can be measured reliably. Capitalised development costs are amortised over the expected life of the
developed product which commences at the point at which the asset is ready for use.
The a2 Milk Company 2024 Annual Report
111
C6. Intangible assets (continued)
Recognition and measurement (continued)
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.
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:
2024
$’000
2023
$’000
Australia and New Zealand
50,653
50,617
China
51,730
51,730
102,383
102,347
Recognition and measurement
Impairment testing of non-financial assets
Assets that have an indefinite useful life, such as goodwill and trademarks, are not amortised but are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash‑generating units).
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.
Operating assets and liabilities
for the year ended 30 June 2024
112
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
C6. Intangible assets (continued)
Annual impairment testing as at 30 June 2024
The recoverable amount of CGUs containing goodwill and trademarks has been determined on a value in use basis using a
discounted cash flow approach, and projections based on financial budgets approved by the Board, and four-year forward
looking plans supplied by management.
As at 30 June 2024, 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 relating to current plans 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 FY25, 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): 9.6% (2023: 9.3%)
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 FY25 budget and four-year forward-looking plans and adjusted for
recent performance trends across the regions (where necessary).
Terminal growth rate
A terminal growth rate of 2.0% (2023: 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)
The a2 Milk Company 2024 Annual Report
113
C7. Other financial assets
2024
$’000
2023
$’000
Current
Foreign currency forward contracts
8,739
1,536
Non-current
Foreign currency forward contracts
255
113
Listed investment at fair value
9,754
71,965
Unlisted investment at fair value
3,500
–
13,509
72,078
Shareholding in Synlait Milk Limited
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 (2023: $nil).
A fair value loss of $62,211,000 (2023: $63,295,000) was recognised in other comprehensive income for the year.
Movements in the period
Shares
’000
Cost
$’000
Share price at
report date
$
Market value
$’000
Mark to market
$’000
Balance 30 June 2023
43,353
288,781
1.66
71,965
(216,816)
Balance 30 June 2024
43,353
288,781
0.225
9,754
(279,027)
Fair value loss in period
(62,211)
Shareholding in Centre for Climate Action Joint Venture (AgriZeroNZ)
The unlisted investment relates to the Group’s investment in the Centre for Climate Action Joint Venture (trading as AgriZeroNZ)
which is a public-private partnership between the New Zealand Government and major agribusiness companies. Of the $3.5 million
total investment, $2.2 million has been paid with the remaining $1.3 million to be paid in FY25. Given this is a strategic long-term
investment, the Group made a one-time irrevocable election to measure its 1.83% interest at fair value through other
comprehensive income.
Recognition and measurement
Listed and unlisted investments are long-term investments classified as financial assets measured at fair value through other
comprehensive income. The Group does not control or have significant influence over the investees.
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.
Operating assets and liabilities
for the year ended 30 June 2024
114
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
C8. Other financial liabilities
2024
$’000
2023
$’000
Current
Foreign currency forward contracts
6,223
3,501
Non-current
Foreign currency forward contracts
174
235
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.
The a2 Milk Company 2024 Annual Report
115
Financial risk and capital management
for the year ended 30 June 2024
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.
2024
$’000
2023
$’000
Maximum exposures to credit risk at balance date:
Cash and term deposits (counterparty risk)
968,943
802,234
Trade receivables (customer credit risk)
50,726
57,731
Foreign currency forward contracts (counterparty risk)
8,994
1,649
1,028,663
861,614
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.
116
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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 as 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 no significant credit risk concentrations within the Group as at 30 June 2024. There are no other forward-looking
indicators to indicate increases in customer credit risk.
The allowance for expected credit losses is recognised based on an assessment of lifetime expected credit losses.
Ageing of trade receivables at reporting date
2024
$’000
2023
$’000
Not past due
47,054
54,827
Past due up to 90 days
3,314
2,460
Past due 91 to 180 days
358
–
Past due 181 days to one year
–
412
More than one year
–
32
50,726
57,731
Allowance for expected credit losses
–
(45)
50,726
57,686
The average credit period on sales is 13 days (2023: 14 days). No interest is charged on trade receivables outstanding.
Movement in impairment allowance for expected credit loss
2024
$’000
2023
$’000
Balance at beginning of year
45
125
Amount reversed to the consolidated statement of comprehensive income
(43)
(78)
Provisions reversed and net foreign exchange differences
(2)
(2)
Balance at end of year
–
45
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 and unlisted 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.
The a2 Milk Company 2024 Annual Report
117
D1. Financial risk management (continued)
Interest risk management
The Group’s main interest rate risks arise from term deposits and borrowings. Term deposits and borrowings issued at variable
rates expose the Group to cash flow interest rate risk. Term deposits and borrowings at fixed rates expose the Group to fair value
interest rate risk. These risks have not been hedged given the limited exposure.
Term deposits and bank borrowings are primarily with New Zealand banks, in New Zealand dollars, at New Zealand market rates.
Fixed and variable rate exposure
2024
$’000
2023
$’000
Fixed rate instruments
Financial assets
500,000
450,000
Financial liabilities
(37,890)
(52,038)
462,110
397,962
Variable rate instruments
Financial assets
318,674
176,170
Financial liabilities
–
(30,000)
318,674
146,170
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 $3,187,000 (2023: $1,462,000). 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 China, Australia, and USA; 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.
Financial risk and capital management
for the year ended 30 June 2024
118
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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
Term
Notional amount
NZ dollars
Weighted average
exchange rate
2024
$’000
2023
$’000
2024
$’000
2023
$’000
2024
2023
AUD
Buy NZD/sell AUD
(72)
(1,041) One year or less
47,811
72,232
0.9098
0.8999
Buy NZD/sell AUD
19
–
More than one year
5,480
–
0.9124
–
Buy EUR/sell AUD
(6)
(117) One year or less
610
2,933
1.5941
1.5906
RMB
Buy USD/sell RMB
(non-deliverable
forward)
(7,282)
–
One year or less
322,396
–
0.1421
–
Buy USD/sell RMB
(non-deliverable
forward)
(27)
–
More than one year
2,353
–
0.1426
–
Buy RMB/sell NZD
4,332
–
One year or less
167,100
–
0.2337
–
Buy RMB/sell NZD
56
–
More than one year
2,371
–
0.2371
–
USD
Buy NZD/sell USD
512
3,122
One year or less
269,851
173,574
0.6105
0.6222
Buy NZD/sell USD
(129)
123
More than one year
33,386
43,371
0.6066
0.6110
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.
The a2 Milk Company 2024 Annual Report
119
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 pre-tax equity
of the Group based on closing exchange rates as at 30 June 2024, applied to the Group’s foreign currency forward contracts at 30
June 2024. Exchange rates and foreign currency forward contracts will fluctuate over the course of normal operations.
2024
Impact on pre-tax equity
gain or (loss)
$’000
$’000
Movement on exchange rate
+10%
-10%
AU Dollar
(5,842)
4,553
Chinese Yuan Renminbi
(17,210)
13,270
US Dollar
(33,106)
26,276
2023
Impact on pre-tax equity
gain or (loss)
$’000
$’000
Movement on exchange rate
+10%
-10%
AU Dollar
(7,472)
6,067
US Dollar
(24,011)
18,933
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.
2024
Net exposure on
reporting date
$’000
Impact on pre-tax profit or (loss)
$’000
$’000
Movement on exchange rate v NZ dollar
–
+10%
-10%
AU Dollar
548
61
(50)
US Dollar
3,097
344
(282)
Chinese Yuan Renminbi
(141,485)
(15,721)
12,682
2023
Net exposure on
reporting date
$’000
Impact on pre-tax profit or (loss)
$’000
$’000
Movement on exchange rate v NZ dollar
–
+10%
-10%
AU Dollar
(1,631)
(181)
148
US Dollar
62,608
6,956
(5,692)
Chinese Yuan Renminbi
(131,333)
(14,593)
11,939
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.
Financial risk and capital management
for the year ended 30 June 2024
120
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
D1. Financial risk management (continued)
Foreign currency risk management (continued)
Exchange rates
The following significant exchange rates applied during the year:
Average rate
Reporting date spot rate
2024
2023
2024
2023
AU Dollar
0.9251
0.9153
0.9152
0.9191
US Dollar
0.6068
0.6168
0.6062
0.6079
Chinese Yuan Renminbi
4.3835
4.2856
4.4059
4.4066
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 2024, the exposure to the listed investment at FVOCI was $9,754,000 (2023: $71,965,000). A 10% increase or
decrease in the share price of this listed investment would result in an increase or decrease of $975,000 (2023: $7,197,000) in
the fair value revaluation reserve through other comprehensive income, with no effect on profit or loss.
The Group is exposed to equity price risk on its unlisted investment. Given this is a strategic long-term investment, the Group
made a one-time irrevocable election to measure its 1.83% interest at FVOCI. This risk is not hedged.
As the investment was made in proximity to the year end, it was valued at the transaction cost, which is deemed to be the best
estimation of fair value, and no fair value gain or loss was recognised in other comprehensive income for the year.
As at 30 June 2024, the exposure to the unlisted investment at FVOCI was $3,500,000 (2023: $nil). A 10% increase or decrease
in the share price of this unlisted investment would result in an increase or decrease of $350,000 (2023: $nil) in the fair value
revaluation reserve through other comprehensive income, with no effect on profit or loss.
Liquidity risk management
Liquidity risk is the risk that the Group will be unable to meet its obligations as they fall due. This risk is managed by establishing a
target minimum liquidity level, ensuring that ongoing commitments are managed with respect to forecast available cash inflows.
The Group holds significant cash reserves which enable it to meet its obligations as they fall due, and to support operations in the
event of unanticipated external events.
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 (2023: $nil).
The a2 Milk Company 2024 Annual Report
121
D1. Financial risk management (continued)
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.
2024
Carrying
amounts
$’000
Contractual cash flows
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
Non-derivative financial liabilities
Secured bank loans
–
–
–
–
–
–
–
Unsecured loan from MVM’s
non-controlling shareholder
37,890
40,872
–
–
–
40,872
–
Lease liabilities
28,330
35,532
3,566
3,560
6,687
11,650
10,069
Trade and other payables – excluding
employee entitlements and customer
contract liabilities
321,935
321,935
321,935
–
–
–
–
Derivative financial liabilities
FX hedging contracts:
Carrying amount at fair value
6,397
Outflow
360,974
190,794
153,640
16,540
–
–
Inflow
(354,577)
(186,977)
(151,235)
(16,365)
–
–
394,552
404,736
329,318
5,965
6,862
52,522
10,069
2023
Non-derivative financial liabilities
Secured bank loans
45,000
47,472
16,278
1,025
30,169
–
–
Unsecured loan from MVM’s non-controlling
shareholder
37,038
42,021
–
–
–
42,021
–
Lease liabilities
19,491
21,867
2,410
2,421
4,442
8,526
4,068
Trade and other payables – excluding
employee entitlements and customer
contract liabilities
279,124
279,124
279,124
–
–
–
–
Derivative financial liabilities
FX hedging contracts:
Carrying amount at fair value
3,736
Outflow
217,136
85,945
104,893
26,298
–
–
Inflow
(213,400)
(83,789)
(103,548)
(26,063)
–
–
384,389
394,220
299,968
4,791
34,846
50,547
4,068
Financial risk and capital management
for the year ended 30 June 2024
122
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
D1. Financial risk management (continued)
Change in liabilities arising from financing activities
30 June 2023
$’000
Cash flow
$’000
Non-cash
$’000
30 June 2024
$’000
Secured bank loans
45,000
(45,000)
–
–
Unsecured related entity loan
37,038
–
852
37,890
Lease liabilities
19,490
(6,302)
15,142
28,330
101,528
(51,302)
15,994
66,220
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:
Hierarchy
level
2024
2023
Carrying
amount
$’000
Fair Value
$’000
Carrying
amount
$’000
Fair Value
$’000
Cash and term deposits
968,943
968,943
802,234
802,234
Trade and other receivables
78,070
78,070
79,216
79,216
Foreign currency forward contract assets
2
8,994
8,994
1,649
1,649
Listed investment
1
9,754
9,754
71,965
71,965
Unlisted investment
3
3,500
3,500
–
–
Secured bank loans
2
–
–
(45,000)
(42,924)
Unsecured loan from MVM’s
non-controlling shareholder
2
(37,890)
(33,367)
(37,038)
(30,197)
Trade and other payables - excluding employee
entitlements and customer contract liabilities
(321,935)
(321,935)
(279,124)
(279,124)
Foreign currency forward contract liabilities
2
(6,397)
(6,397)
(3,736)
(3,736)
703,039
707,562
590,166
599,083
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.
–
Unlisted investment – as the investment was made in close proximity to the year end, it was valued at the transaction cost,
which is deemed to be the best estimation of fair value.
–
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.
The a2 Milk Company 2024 Annual Report 123
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 2024, but will continue
to review this on a regular basis.
D3. Cash and term deposits
2024
$’000
2023
$’000
Cash at banks and on hand
150,269
176,064
Short-term deposits
368,674
176,170
Cash and short-term deposits
518,943
352,234
Other current term deposits
450,000
450,000
Cash and term deposits
968,943
802,234
Expressed in NZ dollars, cash and term deposits comprises of the following foreign currencies:
2024
$’000
2023
$’000
AU dollars
10,953
30,235
US dollars
38,099
64,915
Chinese Yuan Renminbi
84,498
77,581
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 12 months, having an
average maturity of seven months and a weighted average interest rate of 6.27% 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:
2024
$’000
2023
$’000
Cash at banks and on hand
150,269
176,064
Short-term deposits
368,674
176,170
Cash and short-term deposits
518,943
352,234
Financial risk and capital management
for the year ended 30 June 2024
124
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
D4. Cash flow information
Reconciliation of after-tax profit with net cash flows from operating activities:
2024
$’000
2023
$’000
Net profit for the year
153,882
144,841
Adjustments for non-cash items:
Depreciation and amortisation
32,199
18,197
Share-based payments
10,727
17,132
Net foreign exchange loss/(gain)
2,766
(1,917)
Gain on termination of leases
(229)
–
Loss on disposal of software
60
–
Changes in working capital:
Trade and other receivables
1,146
4,294
Prepayments
(6,863)
10,912
Inventories
13,792
(53,396)
Trade and other payables
40,221
(71,633)
Tax balances
8,043
42,853
Net cash inflow from operating activities
255,744
111,283
The a2 Milk Company 2024 Annual Report 125
D5. Leases
Group as lessee
The Group has entered into leases for office and industrial premises, motor vehicles and plant 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:
2024
Leased
property
$’000
Office &
computer
$’000
Plant &
equipment
$’000
Total
$’000
Carrying amount 1 July 2023
16,471
56
822
17,349
Additions
2,981
-
10,829
13,810
Depreciation
(4,195)
(41)
(1,067)
(5,303)
Net foreign currency exchange differences
62
(1)
4
65
Carrying amount 30 June 2024
15,319
14
10,588
25,921
Cost
31,832
188
12,811
44,831
Accumulated depreciation
(16,513)
(174)
(2,223)
(18,910)
Carrying amount 30 June 2024
15,319
14
10,588
25,921
2023
Leased
property
$’000
Office &
computer
$’000
Plant &
equipment
$’000
Total
$’000
Carrying amount 1 July 2022
15,334
102
594
16,030
Additions
5,228
–
708
5,936
Depreciation
(3,890)
(46)
(470)
(4,406)
Net foreign currency exchange differences
(201)
–
(10)
(211)
Carrying amount 30 June 2023
16,471
56
822
17,349
Cost
28,789
189
1,978
30,956
Accumulated depreciation
(12,318)
(133)
(1,156)
(13,607)
Carrying amount 30 June 2023
16,471
56
822
17,349
Financial risk and capital management
for the year ended 30 June 2024
126
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
D5. Leases (continued)
Group as lessee (continued)
Lease liabilities
Carrying amounts of lease liabilities and movements during the period:
2024
$’000
2023
$’000
Balance at beginning of the year
19,490
17,352
Additions
13,810
5,936
Gain on termination of lease
(229)
–
Accretion of interest
1,493
640
Payments
(6,302)
(4,218)
Net foreign currency exchange differences
68
(220)
Balance at end of the year
28,330
19,490
Current
5,598
4,181
Non-current
22,732
15,309
28,330
19,490
Amounts recognised in profit or loss
2024
$’000
2023
$’000
Depreciation expense – right-of-use assets
5,303
4,406
Interest expense – lease liabilities
1,493
640
Expenses relating to short-term leases (included in administrative and other expenses)
772
978
Expenses relating to low-value assets (included in administrative and other expenses)
4
33
Total amount recognised in profit or loss
7,572
6,057
Cash flows for leases
2024
$’000
2023
$’000
Total cash outflows:
Lease interest
1,493
640
Payment of lease principal
4,809
3,578
6,302
4,218
Non-cash additions to right-of-use assets and lease liabilities
13,810
5,936
The a2 Milk Company 2024 Annual Report 127
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.
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.
Financial risk and capital management
for the year ended 30 June 2024
128
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
D6. Loans and borrowings
2024
$’000
2023
$’000
Current
Secured:
Bank loans
–
15,000
–
15,000
Non-current
Secured:
Bank loan
–
30,000
Unsecured:
Loan from MVM’s non-controlling shareholder
37,890
37,038
37,890
67,038
All of the loans and borrowings are specific to Mataura Valley Milk Limited (MVM) and are interest bearing.
Finance facilities available to MVM:
–
Total bank debt facilities of $45 million (30 June 2023: $75 million), undrawn as at 30 June 2024 (30 June 2023: $45 million
drawn).
–
A performance guarantee facility of $10 million, fully drawn as at 30 June 2024 (30 June 2023: $10 million, fully drawn).
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 2024.
The $30 million bank loan due to mature in July 2024 was fully repaid and closed during the year.
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 interest rate applicable
as at 30 June 2024 was 2.56% (30 June 2023: 2.56%).
Other Group entities have access to bank guarantee facilities totalling $1,206,000 of which $457,000 was drawn as at 30 June 2024
(30 June 2023: $1,783,000 of which $1,246,000 was drawn).
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.
The a2 Milk Company 2024 Annual Report 129
D7. Share capital
2024
2023
Number of
shares
Share capital
$’000
Number of
shares
Share capital
$’000
Movements in contributed equity:
Fully paid ordinary shares:
Balance at beginning of year
721,976,214
100
743,656,528
149,157
Movements in the period:
Vesting of performance rights
958,594
–
–
–
Share buyback
–
–
(21,680,314)
(149,057)
958,594
–
(21,680,314)
(149,057)
Balance at end of year
722,934,808
100
721,976,214
100
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.
Financial risk and capital management
for the year ended 30 June 2024
130
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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 and unlisted 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.
2024
2023
Number of
shares
$’000
Number of
shares
$’000
Movements in treasury shares reserve:
Balance at beginning of year
2,042,948
13,602
2,372,842
15,798
Movements in the period:
Vesting of performance rights
(735,372)
(4,896)
–
–
Vesting of matching share rights
–
–
(14,011)
(93)
Vesting of time-based rights
–
–
(261,505)
(1,741)
Gift shares
–
–
(54,378)
(362)
(735,372)
(4,896)
(329,894)
(2,196)
Balance at end of year
1,307,576
8,706
2,042,948
13,602
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.
The a2 Milk Company 2024 Annual Report
131
D9. Capital expenditure commitments
2024
$’000
2023
$’000
Contracted but not yet provided for and payable
Property, plant and equipment
6,545
21,277
D10. Contingent liabilities
The a2 Milk Company Limited (‘the Company’) is the defendant in a group proceeding in the Supreme Court of Victoria, jointly
conducted by Slater & Gordon Lawyers and Shine Lawyers (the Australian Proceedings). The Australian Proceedings, now
consolidated, were commenced in October and November 2021 respectively. The Australian Proceedings relate to the period from
19 August 2020 to 9 May 2021 inclusive (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 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): (1) during the Relevant Period; or (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 and/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; and (3) those who fall into both categories (1) and (2).
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 Australian Proceedings, 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.
The plaintiffs and the Company are to file their evidence in the Australian Proceedings in 2025 and the matter has been listed for a
further case management conference on 11 July 2025. A trial has been set for a period of seven weeks commencing on 2 June 2026.
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 Proceeding, 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.
Financial risk and capital management
for the year ended 30 June 2024
132
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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 2024 are as follows:
Parties to
Deed of
Cross
Guarantee
(note E2)*
Principal place
of business
Proportion of
ownership interest
2024
2023
Parent entity:
The a2 Milk Company Limited
✓
New Zealand
–
–
Subsidiaries:
The a2 Milk Company (Export) Limited
–
New Zealand
100%
100%
a2 Holdings UK Limited
–
New Zealand
100%
100%
a2 Infant Nutrition Limited
✓#
New Zealand
100%
100%
The a2 Milk Company (New Zealand) Limited
–
New Zealand
100%
100%
Mataura Valley Milk Limited
–
New Zealand
75%
75%
a2 Australian Investments Pty. Limited
✓
Australia
100%
100%
a2 Botany Pty Ltd
–
Australia
100%
100%
The a2 Milk Company (Australia) Pty Ltd
✓
Australia
100%
100%
a2 Exports Australia Pty Limited
✓
Australia
100%
100%
a2 Infant Nutrition Australia Pty Ltd
✓
Australia
100%
100%
The a2 Milk Company (Nutrition) Pty Ltd
✓
Australia
100%
100%
a2MC Group Employee Share Trust
–
Australia
100%
100%
a2 ESS Holdings Pty Limited
–
Australia
100%
–
The a2 Milk Company Limited
–
UK
–
100%
The a2 Milk Company LLC
–
USA
100%
100%
The a2 Milk Company
–
USA
100%
100%
The a2 Milk Company Limited
–
Canada
100%
100%
a2 Infant Nutrition (Shanghai) Co., Ltd
–
China
100%
100%
The a2 Milk Company (Shanghai) Limited
–
China
100%
–
The a2 Milk Company (Singapore) Pte. Ltd
–
Singapore
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.
Other than the establishment of a2 ESS Holdings Pty Limited and The a2 Milk Company (Shanghai) Limited and the dissolution of
The a2 Milk Company Limited (UK), 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 LLC, a2 Infant Nutrition (Shanghai) Co., Ltd and
The a2 Milk Company (Shanghai) Limited which have a balance date of 31 December.
Group structure
for the year ended 30 June 2024
The a2 Milk Company 2024 Annual Report 133
E1. Consolidated entities (continued)
Recognition and measurement
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its powers over the entity. The
financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with
those of the Group.
Transactions eliminated on consolidation
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.
E2. Deed of cross guarantee
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the Australian-incorporated wholly owned
subsidiaries listed in Note E1 as parties to the Deed of Cross Guarantee are eligible for relief from the Corporations Act 2001 (Cth,
Australia) requirements for preparation, audit and lodgement of financial reports and directors’ reports in Australia.
It is a condition of the ASIC Corporations Instrument that the Company and each of the subsidiaries listed enter into a Deed of Cross
Guarantee. The effect of the Deed is that each party guarantees to each creditor of each other party payment in full of any debt in
the event of winding up of the other party under certain provisions of the Corporations Act 2001 (Cth, Australia). If a winding up
occurs under other provisions of the Act, the guarantee will only apply if after six months after a resolution or order for winding up
any creditor has not been paid in full.
A consolidated statement of comprehensive income and statement of financial position, comprising the Company and controlled
entities which are parties to the Deed of Cross Guarantee (each party being a member of the closed group as listed in Note E1), after
eliminating all transactions between parties to the Deed of Cross Guarantee, at 30 June 2024 are set out as follows:
Consolidated statement of comprehensive income and retained earnings for the year ended 30 June 2024
2024
$’000
2023
$’000
Revenue
1,493,807
1,400,813
Expenses
(1,253,516)
(1,158,508)
Finance income (net)
49,469
30,874
Profit before tax
289,760
273,179
Income tax expense
(73,868)
(69,032)
Profit after tax
215,892
204,147
Other comprehensive income
(1,415)
6,929
Total comprehensive income for the year
214,477
211,076
Retained earnings at beginning of the year
1,417,116
1,212,969
Transfers to and from reserves
1,415
(6,929)
Retained earnings at end of year
1,633,008
1,417,116
Group structure
for the year ended 30 June 2024
134
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
E2. Deed of cross guarantee (continued)
Consolidated statement of financial position as at 30 June 2024
2024
$’000
2023
$’000
Assets
Current assets
Cash and term deposits
859,293
713,042
Trade and other receivables
137,173
192,998
Prepayments
49,488
40,009
Inventories
148,826
164,112
Other financial assets
8,243
1,291
Total current assets
1,203,023
1,111,452
Non-current assets
Property, plant and equipment
22,201
23,251
Right-of-use assets
10,540
10,967
Investment property
30,845
17,927
Intangible assets
20,050
13,723
Other financial assets
751,765
606,522
Deferred tax assets
25,986
20,892
Total non-current assets
861,387
693,282
Total assets
2,064,410
1,804,734
Liabilities
Current liabilities
Trade and other payables
303,763
286,230
Lease liabilities
2,055
2,141
Other financial liabilities
10,363
6,524
Income tax payable
48,746
35,220
Total current liabilities
364,927
330,115
Non-current liabilities
Trade and other payables
532
421
Lease liabilities
9,892
235
Other financial liabilities
74
10,396
Total non-current liabilities
10,498
11,052
Total liabilities
375,425
341,167
Net assets
1,688,985
1,463,567
Equity
Share capital
100
100
Retained earnings
1,633,008
1,417,116
Reserves
55,877
46,351
Total equity
1,688,985
1,463,567
The a2 Milk Company 2024 Annual Report 135
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:
2024
$’000
2023
$’000
Short-term employee benefits
9,736
9,160
Other long-term benefits
–
–
Share-based payments
4,783
6,560
14,519
15,720
Other than Non-executive Directors, key management personnel in FY24 include the following senior executives:
–
Managing Director and CEO
–
Chief Financial Officer
–
Chief Executive Officer - 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 (2023: $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 2024 and
2023 financial years.
Other disclosures
for the year ended 30 June 2024
136
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
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 3,069,769 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
Revenue CAGR hurdles
50% vest
85% vest
100% vest
FY24 plan
3,069,769 rights
3 years to 30 June 2026
10%
4%
6%
8%
Both the minimum EPS CAGR (compound annual growth in diluted earnings per share) and minimum Revenue CAGR (compound
annual growth in normalised total external 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 such 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, impairment charges, 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
1 Nov 23
15 Dec 23
Fair value at measurement date
$4.20
$4.37
Share price at grant date
$4.20
$4.37
Performance rights life
2.8 years
2.7 years
The a2 Milk Company 2024 Annual Report 137
F2. Share-based payments (continued)
Performance rights granted in previous years
The performance hurdles of performance rights issued in previous years are 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
Revenue CAGR hurdles
50% vest
85% vest
100% vest
FY22 plan
3 years to 30 June 2024
20%
6%
8%
10%
FY23 plan
3 years to 30 June 2025
10%
6%
8%
10%
Both the minimum EPS CAGR (compound annual growth in diluted earnings per share) and minimum Revenue CAGR (compound
annual growth in normalised sales for the FY22 plan and normalised revenue for the FY23 plan) 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 such 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, impairment charges, 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 weighted average fair value at grant date for current year grants was $4.24 (2023: $6.14) and previous years’ grants was $6.65
(2023: $7.18).
LTI outstanding as at 30 June 2024
Number
Grant Dates
Vesting Dates
Expiry Dates
Performance rights – FY22 grants Tranche 2 (FY22 plan)
1,963,298
22-Oct-21
19-Aug-24
19-Aug-24
Performance rights – FY23 grants
1,988,935
30-Sep-22
18-Aug-25
18-Aug-25
Performance rights – FY24 grants
2,932,455
1-Nov-23
17-Aug-26
17-Aug-26
6,884,688
Other disclosures
for the year ended 30 June 2024
138
Building a sustainable growth business
Corporate governance
Company disclosures
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
F2. Share-based payments (continued)
Number
2024
Number
2023
Performance rights movements:
Outstanding at the beginning of the year
6,094,509
4,690,064
Forfeited during the period
(532,449)
(1,067,825)
Granted during the period
3,069,769
2,472,270
Vested during the period
(1,747,141)
–
Outstanding at the end of the year
6,884,688
6,094,509
The weighted average remaining contractual life of performance rights is 1.3 years (2023: 1.2 years).
Amounts recognised in the consolidated statement of comprehensive income
During the year ended 30 June 2024, a $10,727,000 expense was recognised in the consolidated statement of comprehensive
income for equity settled share-based payment awards (2023: $17,132,000).
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.
The a2 Milk Company 2024 Annual Report 139
F3. Auditor’s remuneration
The auditor of the Company is Ernst & Young Australia.
Amounts received or due and receivable by Ernst & Young for:
2024
$’000
2023
$’000
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
1,386
1,400
Fees for other assurance and agreed-upon-procedures services
224
177
Fees for other services:
Market research1
156
178
Total fees to Ernst & Young (Australia)
1,766
1,755
Fees to other overseas member firms of Ernst & Young:
Total fees to other overseas member firms of Ernst & Young for local statutory audits
116
115
1,882
1,870
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
As announced on 16 August 2024, the Company confirmed that it had conditionally resolved the various disputes subject to
arbitration with Synlait Milk Limited (Synlait), including the exclusivity dispute, pricing disputes, and various other disputes.
The settlement is conditional on Synlait completing its equity raise and the refinancing of Synlait’s existing banking facilities.
a2MC has agreed to support and subscribe for shares under Synlait’s equity raise, subject to finalisation of terms which will be
set out in Synlait’s forthcoming notice of meeting expected to be released this month.
No other 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.
Other disclosures
for the year ended 30 June 2024
140
Building a sustainable growth business
Corporate governance
Chair’s letter
CEO’s year in review
Financial statements
Notes to the Financial Statements (continued)
Company disclosures
Company disclosures
for the year ended 30 June 2024
Contents
1.
Substantial product holders
141
2. Voting rights
141
3. Twenty largest fully paid equity security holders
142
4. Spread of security holders as at 1 August 2024 and number of holders
143
5. Directors’ relevant interests and share dealings
144
6. Credit rating status
145
7. NZX Waivers
145
8. Particulars of notices or statements given to or approved by the Board
145
9. Limitations on the acquisition of securities
147
10. On-market buyback
147
11. On-market purchases
147
12. Donations
147
13. Directors and officers
148
14. Employee remuneration range
148
15. Principal activities
149
16. Reconciliation of EBITDA to net profit after tax
149
1. Substantial product holders
The shares of the Company are quoted on NZX, the ASX and Cboe Australia.
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 2024 (such disclosure being required by the Financial
Markets Conduct Act 2013 (NZ)) and as at 1 August 2024 (such disclosure being required by the ASX Listing Rules):
As at 30 June 2024
As at 1 August 2024
Name
Number of
ordinary
shares in the
Company in
which a
Relevant
Interest is held
% of ordinary
shares held1
Number of
ordinary
shares in the
Company in
which a
Relevant
Interest is held
% of ordinary
shares held1
Perpetual Limited and subsidiaries
59,109,211
8.176
59,109,211
8.176
The Goldman Sachs Group, Inc
40,370,505
5.584
40,370,505
5.584
The Vanguard Group
36,159,019
5.002
36,159,019
5.002
Bennelong Funds Management Group Pty Ltd
41,186,962
5.697
41,186,962
5.697
1 Based on issued share capital of 722,934,808 as at 30 June 2024 and 1 August 2024.
The total number of voting shares on issue as at 30 June 2024 was 722,934,808 and the total number of voting shares on issue as at
1 August 2024 was 722,934,808.
2. Voting rights
During the period 1 July 2023 to 30 June 2024, 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.
The a2 Milk Company 2024 Annual Report
141
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 2024 are listed below:
Rank
Investor name
Number of
shares
% Issued
capital
1
HSBC Custody Nominees (Australia) Limited
113,290,528
15.67
2
Citicorp Nominees Pty Limited
96,163,814
13.30
3
BNP Paribas Nominees NZ Limited Bpss40*
42,529,528
5.88
4
J P Morgan Nominees Australia Pty Limited
34,661,044
4.79
5
HSBC Nominees (New Zealand) Limited*
26,156,306
3.62
6
Tea Custodians Limited*
21,013,734
2.91
7
HSBC Custody Nominees (Australia) Limited Gsco Eca
20,980,543
2.90
8
Accident Compensation Corporation*
20,509,205
2.84
9
JPMORGAN Chase Bank*
18,595,095
2.57
10
New Zealand Superannuation Fund Nominees Limited*
17,659,815
2.44
11
Citibank Nominees (NZ) Ltd*
15,787,511
2.18
12
New Zealand Depository Nominee
14,021,429
1.94
13
National Nominees Limited
13,425,469
1.86
14
HSBC Nominees (New Zealand) Limited*
9,463,432
1.31
15
Premier Nominees Limited*
8,473,699
1.17
16
Public Trust*
7,323,398
1.01
17
UBS Nominees Pty Ltd
6,938,917
0.96
18
New Zealand Permanent Trustees Limited*
6,325,699
0.88
19
BNP Paribas Noms Pty Ltd
6,123,304
0.85
20
JBWERE (NZ) Nominees Limited
5,945,531
0.82
Total
505,388,001
69.90
* These shares are held through New Zealand Central Securities Depository Limited (NZCSD), a depository system which allows electronic trading of
securities to members.
Company disclosures
for the year ended 30 June 2024
142
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
4. Spread of security holders as at 1 August 2024 and number of holders
a) Fully paid ordinary shareholders
Size of Shareholding
Number of
holders
%
Number of
shares
%
1 – 1,000
46,824
66.85
16,304,267
2.26
1,001 – 5,000
17,619
25.15
42,377,226
5.86
5,001 – 10,000
3,226
4.61
23,931,664
3.31
10,001 – 100,000
2,229
3.18
52,293,776
7.23
100,001 shares or more
144
0.21
588,027,875
81.34
Total
70,042
100
722,934,808
100
As at 1 August 2024, and based on the closing market price on that date, the number of holders with 127 or less ordinary shares (being less
than a minimum holding of NZ$1,000 under the NZX Listing Rules) was 1,214 and the number of holders with 70 or less ordinary shares
(being less than a marketable parcel of A$500 under the ASX Listing Rules) was 6,099.
b) Performance rights (unlisted securities not quoted by the NZX or ASX)
Size of holding
Number of
holders
Number of
rights
%1
1 – 5,000
1
4,234
0.06
5,001 – 10,000
8
60,395
0.88
10,001 – 100,000
42
1,369,797
19.90
100,001 performance rights or more
18
5,450,262
79.17
Total
69
6,884,688
100
1 All values subject to rounding.
The a2 Milk Company 2024 Annual Report 143
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 2023 to 30 June 2024:
Registered holder
Beneficial/
Non-beneficial
Acquired/
(Disposed)
Class of financial
product
Date
Consideration
paid/(received)
NZD
David Bortolussi
DMZSK Pty Ltd1
Beneficial
(478,577)
Performance
Rights
30 August 2023
N/A
DMZSK Pty Ltd1
Beneficial
478,577
Ordinary shares
30 August 2023
N/A
DMZSK Super Pty Ltd
Beneficial
690,066
Performance
Rights
15 December 2023
N/A
1 Reflects the issue of ordinary shares to David Bortolussi following the vesting and automatic exercise of performance rights.
Directors of the Company as at 30 June 2024 held the following relevant interests in the financial products of the Company as at
that date:
Registered holder
Beneficial/
Non-beneficial
Balance held
No.
Class of financial
product
David Bortolussi
DMZSK Pty Ltd as trustee of D&M Bortolussi Family Trust
Beneficial
789,860
Ordinary shares
DMZSK Pty Ltd as trustee of D&M Bortolussi Family Trust
Beneficial
490,906
Performance rights
DMZSK Super Pty Ltd as trustee for D&M Bortolussi
Superannuation Fund
Beneficial
1,191,246
Performance rights
Warwick Every-Burns
Warwick Every-Burns as trustee of Wake Super Fund
Beneficial
75,000
Ordinary shares
Kathryn Every-Burns
Beneficial
25,000
Ordinary shares
Pip Greenwood
The New Zealand Guardian Trust Company Limited as the
supervisor for Craigs KiwiSaver Scheme
Beneficial
30,000
Ordinary shares
Kate Mitchell
Forsyth Barr Custodian Limited
Beneficial
1,000
Ordinary shares
Company disclosures
for the year ended 30 June 2024
144
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
6. Credit rating status
Not applicable.
7. NZX Waivers
On 16 October 2023, NZ RegCo granted the Company a waiver from the requirement for the Company to include an appraisal report
with its Notice of Meeting in respect of resolution 3 under Listing Rule 7.8.5(b). The terms of this waiver can be found on the
Company’s announcement page on the NZX website (www.nzx.com/companies/ATM/announcements).
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 2024 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.
During the reporting period ended 30 June 2024, directors advised the Company of the following changes or additional entries
in the Company’s interests register:
Name of Director
Entity
Position
David Bortolussi
SkinKandy Holdings Pty Ltd
Director and chair
Kate Mitchell
Farmright Limited
Ceased to be a director
Kate Mitchell
Purepods Limited
Appointed as a director
Kate Mitchell
Firsttrax Approvals Limited
Appointed as a director
Kate Mitchell
The Gut Foundation
Appointed as a trustee
Sandra Yu
91APP, Inc
Appointed as a director
No other entries were made in the interests registers of the Company’s subsidiaries during the reporting period.
The a2 Milk Company 2024 Annual Report 145
8.2. Directors of subsidiary companies
The following persons held office as directors of subsidiary companies during the year ended 30 June 2024.
Subsidiary
Jurisdiction
Directors (or equivalent)
The a2 Milk Company (Export) Limited
New Zealand
David Bortolussi
David Muscat
a2 Infant Nutrition Limited
New Zealand
David Bortolussi
Ping (Chopin) Zhang
a2 Holdings UK Limited
New Zealand
David Bortolussi
David Muscat
The a2 Milk Company (New Zealand) Limited
New Zealand
David Bortolussi
Mataura Valley Milk Limited
New Zealand
Deyong Zhang (resigned 1 October 2023)
David Muscat
Ping (Chopin) Zhang
Cao Siyuan
Qingchun Yang (appointed 1 October 2023)
a2 Australian Investments Pty Ltd
Australia
David Bortolussi
David Muscat
a2 Botany Pty Ltd
Australia
David Bortolussi
David Muscat
The a2 Milk Company (Australia) Pty Ltd
Australia
David Bortolussi
David Muscat
a2 Infant Nutrition Australia Pty Ltd
Australia
David Bortolussi
David Muscat
a2 Exports Australia Pty Ltd
Australia
David Bortolussi
David Muscat
The a2 Milk Company (Nutrition) Pty Ltd
Australia
David Bortolussi
David Muscat
a2 ESS Holdings Pty Ltd1
Australia
David Bortolussi
David Muscat
The a2 Milk Company Ltd
British Columbia, Canada
David Bortolussi
David Muscat
The a2 Milk Company Limited2
Scotland, UK
David Hearn
The a2 Milk Company
Delaware, USA
David Hearn (resigned 16 November 2023)
David Bortolussi
David Muscat (appointed 16 November 2023)
The a2 Milk Company LLC
Delaware, USA
David Bortolussi
David Muscat
a2 Infant Nutrition (Shanghai) Co., Ltd.
China
Xiao Li
The a2 Milk Company (Shanghai) Ltd3
China
Xiao Li
The a2 Milk Company (Singapore) Pte. Ltd.
Singapore
David Bortolussi
David Muscat
Shaun Singh
1. a2 ESS Holdings Pty Ltd was incorporated in FY24.
2. The a2 Milk Company Limited (UK) was wound up in FY24.
3. The a2 Milk Company (Shanghai) Ltd was incorporated in FY24.
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.
8.3. Use of Company information
The Board received no notices during the reporting period ended 30 June 2024 from directors requesting to use Company
information received in their capacity as directors which would not have been otherwise available to them.
Company disclosures
for the year ended 30 June 2024
146
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
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
There is no current on-market buyback of the Company’s securities.
11. On-market purchases
During the reporting period ended 30 June 2024, no shares of the Company were purchased on-market.
12. Donations
The Company and its subsidiaries have made donations of cash and products totalling $2,972,076 during the year ended
30 June 2024 (2023: $2,840,890).
The a2 Milk Company 2024 Annual Report 147
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 2024 and 30 June 2023 is
as follows:
At 30 June
2024
At 30 June
2023
Directors
6
7
Females
3
3
Males
3
4
Gender diverse
–
–
Officers
10
10
Females
3
3
Males
7
7
Gender diverse
–
–
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 2024.
The remuneration bands are expressed in New Zealand Dollars.
Remuneration Range
$ (gross)
Number of
employees in
the year ended
30 June 2024
(based on
actual
payments)
Value of
exercised
rights included
in
remuneration
range $
$100,000 - $109,999
38
–
$110,000 - $119,999
29
–
$120,000 - $129,999
21
–
$130,000 - $139,999
18
–
$140,000 - $149,999
23
–
$150,000 - $159,999
16
–
$160,000 - $169,999
15
–
$170,000 - $179,999
13
–
$180,000 - $189,999
12
–
$190,000 - $199,999
7
–
$200,000 - $209,999
12
–
$210,000 - $219,999
14
–
$220,000 - $229,999
1
–
$230,000 - $239,999
11
–
$240,000 - $249,999
3
–
$250,000 - $259,999
2
–
$260,000 - $269,999
4
–
$270,000 - $279,999
2
154,101
$280,000 - $289,999
5
–
$290,000 - $299,999
1
–
$300,000 - $309,999
7
97,498
$310,000 - $319,999
5
44,610
$320,000 - $329,999
5
50,778
$330,000 - $339,999
5
–
$340,000 - $349,999
1
–
$350,000 - $359,999
2
98,411
$360,000 - $369,999
2
31,699
$370,000 - $379,999
3
–
$380,000 - $389,999
3
94,199
$400,000 - $409,999
3
–
$420,000 - $429,999
3
188,631
$440,000 - $449,999
1
–
$460,000 - $469,999
2
120,673
Company disclosures
for the year ended 30 June 2024
148
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
Remuneration Range
$ (gross)
Number of
employees in
the year ended
30 June 2024
(based on
actual
payments)
Value of
exercised
rights included
in
remuneration
range $
$470,000 - $479,999
1
79,487
$510,000 - $519,999
1
60,757
$520,000 - $529,999
1
117,601
$540,000 - $549,999
1
146,431
$620,000 - $629,999
1
51,555
$670,000 - $679,999
1
145,296
$720,000 - $729,999
4
548,596
$730,000 - $739,999
1
–
$750,000 - $759,999
1
117,156
$760,000 - $769,999
1
–
$770,000 - $779,999
1
310,405
$840,000 - $849,999
1
842,057
$850,000 - $859,999
2
155,415
$870,000 - $879,999
1
–
$930,000 - $939,999
1
–
$1,060,000 - $1,069,999
1
174,841
$1,100,000 - $1,109,999
1
277,933
$1,120,000 - $1,129,999
1
220,142
$1,140,000 - $1,149,999
1
–
$1,280,000 - $1,289,999
1
–
$1,500,000 - $1,509,999
1
459,396
$1,610,000 - $1,619,999
1
396,818
$4,300,000 - $4,309,999
1
1,008,707
Total
316
5,993,193
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 performance rights. The table does not include
amounts paid after 30 June 2024 relating to FY25, 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 2024.
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.
2024
$’000
2023
$’000
Group EBITDA
234,344
219,298
Depreciation & amortisation
(32,199)
(18,197)
EBIT
202,145
201,101
Interest income
40,396
26,733
Interest expense
(4,401)
(4,972)
Income tax expense
(84,258)
(78,021)
Net profit after tax
153,882
144,841
Attributable to:
Owners of the Company
167,577
155,638
Non-controlling interests
(13,695)
(10,797)
153,882
144,841
The a2 Milk Company 2024 Annual Report 149
Company
The a2 Milk Company Limited
New Zealand share registry
MUFG Pension & Market Services
PO Box 91976
Victoria Street West
Auckland 1142
New Zealand
Telephone: +64 9 375 5998
Australian share registry
MUFG Pension & Market Services
Locked Bag A14
Sydney South NSW 1235
Australia
Telephone: +61 1300 554 474
Registered offices
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
Auditor
Ernst & Young
200 George Street
Sydney NSW 2000
Australia
Company Secretary
Jaron McVicar
Corporate website
www.thea2milkcompany.com
Corporate directory
150
Building a sustainable growth business
Corporate governance
Financial statements
Company disclosures
Chair’s letter
CEO’s year in review
The a2 Milk Company Limited (Australian Registered Body Number 158 331 965 – Incorporated in New Zealand)
thea2milkcompany.com