Specialty Milk Marketer a2 Milk Company is considering further investment in its dairy plant to de-risk its business and secure future growth.
The company’s previous strategy of not owning stainless steel was appropriate for risky start-ups, but “no longer appropriate” for companies with about $1.5 billion in revenue and large China operations, the chairman said. David Hahn told bystanders.at the Annual General Meeting in Auckland on Friday
A2 Milk’s processing partner, Thinlite Milk, is the exclusive manufacturer of a2 Milk’s infant formula for the Chinese market and holds the Chinese SAMR regulatory license for this product. China is the world’s largest powdered milk market and accounts for the majority of a2 milk sales.
“We would have to have our own license, but we don’t,” says Heard. “The SAMR regulator, perhaps uniquely, does not regulate business through the brand owner, but rather through the manufacturer. The owner of our license is Synlait, not us.
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“It doesn’t matter on some level because we are close partners. But as a business, in the long run, it’s not a liability for us to have a very large market capitalization based on licenses we don’t own.” .”
Synlait and a2 Milk are in the process of registering a2 Milk’s China labeled infant formulas to the new China standards.
Hurd’s ownership of the end-to-end supply chain will give a2 Milk access to greater innovation and technology to drive product innovation, and having multiple product sources will reduce business risk. said.
A2 Milk has already started investing in the plant, last year flagging plans to buy a 75% stake in Southland’s Mataura Valley milk plant and acquire additional manufacturing capacity in New Zealand and China. .
The company recently appointed two experts to help shape plans for a2 Milk, Heard said.
The company appointed China-based manufacturing and supply chain specialist David Wang to its board in September, and last week announced the appointment of former Yashili and Danone executive Chopin Zhang as chief supply chain officer. Did.
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A2 Milk plans to start implementing a five-year plan to build and operate the factory in calendar year 2023, he said.
“It could be China, it could be New Zealand, it could be somewhere else – I don’t know,” Hurd said. “Our commitment is to build an end-to-end supply chain. Yes, and we don’t yet know how it will unfold.
“We need to get an expert view of the risks and opportunities in different places.”
Developing its own factory, he said, doesn’t change the partnership between a2 Milk and Synlait.
“I don’t see why our relationship and intimacy with Sinlate would inevitably change,” he said. “They have been great partners and the plans we develop should take that into account.
“This means we might want to put another license in another facility that we own, so we can manage the license as well,” he said.
A2 Milk owns a 19.8% stake in Synlait, the exclusive manufacturer of infant formula for the Chinese, Australian and New Zealand markets through 2025, and this month after a2 Milk received regulatory approval, it acquired a U.S. will also supply infant formula. to sell to the market.
Synlait’s controlling shareholder is Chinese dairy company Bright Dairy, which holds a 39% stake.
Meanwhile, a2 Milk has an exclusive import and distribution arrangement with China State Farm Agribusiness, a subsidiary of China National Agriculture Development Group Co, the parent company of China Animal Husbandry Group, which holds the remaining 25% stake in Mataura Valley Milk. is tied
A2 Milk had $816.5 million in net cash at the end of its fiscal year on June 30, and this month began a share repurchase of up to $150 million.
Hed said the company wasn’t returning any more to shareholders because it needed to fund future plans.
“One thing is for sure, the strategy will require funding, so we remain flexible so that we can do whatever we decide,” he said. . “When you start building some of the critical kits to supply a business like ours, you’re spending hundreds of millions instead of tens of millions.”
