ATM - A2 Milk Corporation Limited

[peat]

Jayne Hrdlicka, CEO of the A2 milk company, said.
“You can imagine… every month we are increasing production quite significantly.”

https://vimeo.com/304038218

but A2 dont actually produce do they? Dont they just buy it off SML? Forgive me if my understanding is incomplete.

[minimoke]

but A2 dont actually produce do they? Dont they just buy it off SML? Forgive me if my understanding is incomplete.

Maybe referring to their investment in SML - and perhaps letting slip their plans for their cash

[dreamcatcher]

DOW pre-trading up over 680 points so expecting a GREAT day tomorrow

[Leftfield]

but A2 dont actually produce do they? Dont they just buy it off SML? Forgive me if my understanding is incomplete.

Ahem, perhaps you are splitting hairs.

ATM has multiple supply contracts with multiple producers in multiple countries. This is the essence of ATM's disruptive 'low capital' model.

Sure, ATM's IF is currently primarily produced by SML, however this can change, particularly as the partnership with Fonterra develops.

[BlackPeter]

Sure, ATM's IF is currently primarily produced by SML, however this can change, particularly as the partnership with Fonterra develops.

Not so sure about this.

Synlait says they are holding the IP to the A2 infant formula (there is more than milk in it ; as well as holding the import licence for the A2 formula into China. I don't see why we should not believe them.

Nobody else can legally manufacture this formula nor sell it into China.

Any other company first would need to develop their own formula (which would be different to the Synlait A2 formula) - and than they would need to go through the whole approval process with the Chinese authorities.

Not impossible, but it would take considerable time and money.

In my view it is more likely that A2 will use the other A2 sources to produce different A2 milk products (like liquid milk, cheese, ...) which are lower margin.

Obviously - A2 could go for a takeover of Synlait, than they would own the IP and the licences. Mental note ... buy some more SML ;

[Leftfield]

Not so sure about this.

Synlait says they are holding the IP to the A2 infant formula (there is more than milk in it ; as well as holding the import licence for the A2 formula into China. I don't see why we should not believe them.

Nobody else can legally manufacture this formula nor sell it into China.

Any other company first would need to develop their own formula (which would be different to the Synlait A2 formula) - and than they would need to go through the whole approval process with the Chinese authorities.

Not impossible, but it would take considerable time and money.

Good points and I agree in general. However, I would not rule out the option that ATM could well go down the IF route with another supplier/producer.

This could be achieved by establishing another product such as LIF (Liquid infant formula) or even under the umbrella of another brand licensed to A2.

You say developing another brand/formula is possible but would take "considerable time and money" however a take over of SML would be just as expensive (or more expensive) and could be just as fraught.

[44wishlists]

Not so sure about this.

Synlait says they are holding the IP to the A2 infant formula (there is more than milk in it ; as well as holding the import licence for the A2 formula into China. I don't see why we should not believe them.

Nobody else can legally manufacture this formula nor sell it into China.

Any other company first would need to develop their own formula (which would be different to the Synlait A2 formula) - and than they would need to go through the whole approval process with the Chinese authorities.

Not impossible, but it would take considerable time and money.

In my view it is more likely that A2 will use the other A2 sources to produce different A2 milk products (like liquid milk, cheese, ...) which are lower margin.

Obviously - A2 could go for a takeover of Synlait, than they would own the IP and the licences. Mental note ... buy some more SML ;

A take over would require Bright Dairy & Food Co., Ltd. approval. And I am very sure the Chinese wouldn't sell their stakes as easy as you may think. Simply their holding in SML isn't just about money, it's a national importance, security of dairy supply to China.

[Leftfield]

A take over would require Bright Dairy & Food Co., Ltd. approval. And I am very sure the Chinese wouldn't sell their stakes as easy as you may think. Simply their holding in SML isn't just about money, it's a national importance, security of dairy supply to China.

Quite right and why would A2M want to upset their Chinese owner in this crucial market.

Adding to the points I make above, supplying the ATM IF market in China is crucial to ATM (and SML), however there is also a need for ATM to lessen it's Chinese exposure, by expanding into other Asian markets.

While SML is important to ATM in the Chinese market, we should not ignore the possibility that another ATM IF from another supplier/producer could be used under license to A2, to supply other Asian markets, Korea, Japan, Singapore and even India.

(I stress this is all pure speculation from a long term holder and ATM watcher - DYOR.)

[peat]

if SML makes the IF (and they make it under a formula patented license )
and if SML has the license to sell it in China
I'm struggling with what A2M actually do to add value in this milk supply chain.

[BlackPeter]

if SML makes the IF (and they make it under a formula patented license )
and if SML has the license to sell it in China
I'm struggling with what A2M actually do to add value in this milk supply chain.

Good question. But first a clarification - I said that SML hold the IP for the formula, not that it is a patent. There are many things which are not patentable (including recipees and similar), but others are still not allowed to copy it (try to create an exact copy of Coca Cola and sell it and you will find out what I mean).

It is my understanding that SML created this formula specifically for A2 ... and I am pretty sure that they signed contracts which make sure that they can't sell this formula (and certainly not under the A2 brand) to anybody else than A2.

Ah yes - and A2 obviously owns the brand - i.e. the name and probably the design of the cans.

So - I guess it looks like these two sit together in the boat. My initial point was only that it wouldn't be easy for A2 to just get somebody else to produce as well infant formula (and certainly not the current IF they sell into the Chinese market).