ATM - A2 Milk Corporation Limited

**sb9** · 22-06-2020, 04:45 PM

Originally Posted by Mr Slothbear

thanks SB9 and Joshuatree for the quality posts. Certainly much food for thought!

Mataura looks like a very good prospect.

These are investments that will make A2 bigger and better in coming years.

Originally Posted by kiwidollabill

Mataura is probably one of the most efficient plants in the world, built mainly just to make IF (only base powder at the moment) it runs with only a handful of staff...

Yes, they do not have canning facilities at the moment, not sure how easy is it to add one to existing capabilities.

**dobby41** · 23-06-2020, 08:12 AM

Originally Posted by sb9

These are investments that will make A2 bigger and better in coming years.

Yes, they do not have canning facilities at the moment, not sure how easy is it to add one to existing capabilities.

Doesn't it increase their risk though?
Much more capital intensive whereas their capital light model has, so far, treated them well.

**Leftfield** · 23-06-2020, 08:22 AM

Missed the 'plant acquisition' fun yesterday, and have mixed feelings about ATM becoming a true manufacturer.

SH have done well out of ATM's current 'capital light model' and will need convincing that any acquisition is a good move.

That said... there has been an interesting article in the South China News re increased demand for IF. There are some fears re booming lactoferrin sales too. See it here.

One highlight...

"In New Zealand, export volumes are expected to grow by 40 per cent this year to 7 million cans from 5 million cans last year, according to China infant formula market consultant Jane Li.

One New Zealand milk powder manufacturer told Li in February that it had received three times as many orders in the first two months of the year than it did for the whole of 2019"

**kiwidollabill** · 23-06-2020, 08:31 AM

Originally Posted by sb9

Yes, they do not have canning facilities at the moment, not sure how easy is it to add one to existing capabilities.

Built with that in mind... only aspect of it thats not modern is a great big coal boiler....

**Oliver Mander** · 23-06-2020, 08:43 AM

Originally Posted by dobby41

Doesn't it increase their risk though?
Much more capital intensive whereas their capital light model has, so far, treated them well.

I think they will be trying to address their 'supply chain' risks through this model. ATM's core products that drives their sales are produced by someone else; it therefore makes sense to have some modicum of control/influence as to what gets produced. Can do that through standards and monitoring, but now that ATM is selling a lot, ownership is one of the models that makes sense.

The trade-off is that you now need to earn a return on that capital (that's the 'return risk' you are thinking about). It's a trade-off, but I would have thought that as they get larger their supply chain risk is increasing rapidly, at a rate far greater than any risk they are incurring from not achieving returns on capital.

**dobby41** · 23-06-2020, 08:52 AM

Originally Posted by SylvesterCat

The trade-off is that you now need to earn a return on that capital (that's the 'return risk' you are thinking about). It's a trade-off, but I would have thought that as they get larger their supply chain risk is increasing rapidly, at a rate far greater than any risk they are incurring from not achieving returns on capital.

Also, the management of a dairy plant is quite different to the management that they do now.

**kiwidollabill** · 23-06-2020, 09:50 AM

Originally Posted by SylvesterCat

I think they will be trying to address their 'supply chain' risks through this model. ATM's core products that drives their sales are produced by someone else; it therefore makes sense to have some modicum of control/influence as to what gets produced. Can do that through standards and monitoring, but now that ATM is selling a lot, ownership is one of the models that makes sense.

The trade-off is that you now need to earn a return on that capital (that's the 'return risk' you are thinking about). It's a trade-off, but I would have thought that as they get larger their supply chain risk is increasing rapidly, at a rate far greater than any risk they are incurring from not achieving returns on capital.

That, and more A2 milk will be coming off farm, if they dont buy those milk pools then someone else will. They cant take that approach forever but extends the moat further.

**tomm** · 23-06-2020, 11:05 AM

https://nz.finance.yahoo.com/news/ma...225614076.html

A2MILK : MASTERCHEF'S CHOICE.

**Oliver Mander** · 23-06-2020, 11:45 AM

Originally Posted by kiwidollabill

That, and more A2 milk will be coming off farm, if they dont buy those milk pools then someone else will. They cant take that approach forever but extends the moat further.

Good point kiwidollabill.

dobby, agree it's a new capability, but by buying into an existing producer, and as long as they give the manufacturers a seat at the top table, that reduces the risk markedly. They will also have gained enough knowledge/visibility of production capability thru their Synlait partnership.