ATM - A2 Milk Corporation Limited

[Nasi Goreng]

A2 Milks UK sales are forecast to double in the second half of this FY.

Is this really that impressive? It seems like a very conservative forecast. From the info document released in March, it shows UK sales in FY14 as NZ$1.1M. So if they double sales in the second half of this year, what does that mean? Will UK sales be NZ$2.2M for the year or were they already growing in H1 and therefore we will see a higher result for the year... hopefully this.

In contrast, they got NZ$2.3M in sales from China in FY14 which would have included all of the restrictions etc.

So what will they deliver in FY15? Looking beyond Aus, I'm guessing they deliver $6M from China, $4M from UK, $5M from US. This would be growth of about $10M.

[MAC]

You may well perhaps be pessimistic on what was perhaps an expectation beyond what ATM has ever offered as guidance.

One has to put the relative market sizes into perspective, the a2MC goal for the UK was to achieve a 0.2% market share by FY16. This doubling of revenues in the second half means the reported FY segment revenues should be;

HY ($892k) + (2 x $892k) = FY15 UK revenues = $2.7M

The significance of the this is twofold;

Firstly, it would demonstrate that the company is now at the foot of a revenue growth curve for the UK segment, after an 12 to 18 month business establishment period, the hard yards are done, it's about ramping up sales now.

Secondly, UK segment revenues at $2.7M puts the company back on track for probably breaking even in the UK at FY16, which was the anticipation prior to the establishment delays caused by Muller Wiseman.

All very good in the UK.

No, there may be a couple of US accounting cycles that fall within the FY15 year, but it's unlikely ATM will report any revenue contribution for the US within the FY15 report.

Agree though about the China segment, the fresh milk revenues were forecast to double each year for the next couple of years, add a small UHT contribution, and perhaps some revenues from infant formula, and $5M in segment revenues may well be feasible.

It's the push toward the 10% market share in Australia that has provided the revenue growth for FY15, and this will largely be the case for HY16 and FY16 also.

But, with the UK and China segments likely to be profitable at FY16, maybe HY16 for China, watch for forward earnings growth now, as much of what has been sucked out of Australia to fund the UK and China will begin to be reported as NPAT.

The $20M required for the US expansion is not great within that bigger picture, much of which may be funded from the UK and China segments in FY17 and FY18.

Mac

[Ginger_steps_]

I saw something strange at Coles today but didnt have time to investigate.. a2 had a whole new shelve area seperate from all the other milk, it was about 3 or 4 times the size of their original space (which they still retain) and had only 2 bottles of milk left in the whole new area! At a glance it seemed as if they had a big sale, however its not typical to shift other products around for a once off sale. What really tickled my thinker was - their original spot looked as it normally does and was more or less fully stocked... perhaps i caught them in a transition to a new area such as the "specialty milk area" per the UK strategy... anyroads i will keep y'all in the loop.

As promised i will report back. The new a2 milk section came and went within a day. I couldn't locate the milk section guy to quiz him, but it appeared to just be a once off sale - and they managed to clear the shelf if so. I did notice around the time all the a2 milk was approaching its use-by date, around 5 days out. Perhaps they had a bad couple of weeks for a2 sales and needed to clear stock... again this is not normal practice so it will remain a mystery (unless i see the milk section guy).

[Harrie]

As predicted, A2M will settle into the 49c to 52c range until sales data from target markets is released. Hopefully we will be pleasantly surprised to the upside!
Until then I don't expect much movement outside that range. ATM range therefore 0.50 to 0.53

[Nasi Goreng]

Volumes are back to relatively normal levels. This suggests Aussie demand has dried up and there still remains plenty of sellers out there. SP needs a fund or two to start buying or some good news re growth markets... I suspect slow and steady for the next 6 months.

[sb9]

Yep, unless something significant announcement come through, it'll be a patient and painful (for some) wait until Aug 2015 when full year results are announced.

[Harrie]

If they don't hit their targets by FY15, it will be a problem. There is a lot of expectation built into the current price.

[mayday]

Pleased they referred to A2 milk in dairy section.

http://www.foodmag.com.au/features/t...chinese-market

[winner69]

If they don't hit their targets by FY15, it will be a problem. There is a lot of expectation built into the current price.

You sound a bit down and out recently Harrie. ATM getting to you?

You always seemed so positive in the past

[NT001]

Pleased they referred to A2 milk in dairy section.

http://www.foodmag.com.au/features/t...chinese-market

Yes that was good, although I'm a little puzzled by the article's statement that:

"The company [a2MC] also offers a range suitable for those suffering lactose intolerance and also claims to provide superior calcium content which Chinese manufacturers are yet able to replicate."

a2MC actually makes clear its product is not for those suffering lactose intolerance (since it does contain lactose), even though it may be a good option for those who think they are lactose intolerant but actually are not.

And I wasn't aware that A2 is offering "superior calcium content", but of course we don't see what it's saying in its Chinese-language promotional material. It usually stresses that its product is pure natural milk with no additives.

It's interesting to read that China is forecast to become a major force in the dairy world. It already is of course, in terms of volume production, but its per capita dairy consumption in 2012 was only one-eighth that of Australia and it has a long way to go to catch up. If it's going to satisfy its own consumer demand from domestic sources it'll have to address some big issues with regard to land and water utilisation, environment, food safety, technology and farm practice.

While a2MC is doing nicely in China as an external supplier right now, it seems more interested longterm in developing the UK, EU and US markets where it is able to take advantage of existing A2 herds, high farm practice standards and consumer sophistication. It would be a lot harder and riskier to set up a local production operation in China, I would think.

It's also keen to move into Asian countries other than China. The ASEAN region would be an excellent niche market. I heard the other day that an Australian export company is already buying up A2 Milk in Victoria and flying it (under the "a2" label) to Southeast Asia to supply retailers there, apparently without any deal with a2MC. Presumably a2MC makes a profit from the sale in Australia and as far as I'm aware the company concerned is not infringing a2MC's IP or branding. But a2MC would have to keep a close eye on it to make sure the retailers in SE Asia don't get into trouble making unproven health claims. That could really bugger up the market, not only there but also elsewhere.