ATM - A2 Milk Corporation Limited

[bull....]

Probably in support of getting that former Pepsi-Cola executive to head the USA market. He will be useless without tons of money to spend on marketing of course. And like XRO, USA is The Goal. Hoping both companies make it there.

of course marketing isn't cheap in the us especially prime time oh I wonder f he has a big pay-check due if things don't work out or will the 20m cover that?

[macduffy]

I see that ATM is trading on the ASX under the unfortunate ticker of A2M. They may want to reconsider that one!

[Snoopy]

wow they are spending 20m on the us

http://www.stuff.co.nz/business/6757...-states-stores

more on this market than china and the uk wow does that mean the us is going to be the big one? looks to me like the other markets are marking time as wouldn't you invest more money into say the uk if it was gaining traction? confused punter to say the least

Nothing new in this article. The $20m spend - over three years - to grow in the USA was revealed in the half year results

From the article:
"In China a2 sold mainly through distributors, who received product from a wholly-owned a2 subsidiary. This subsidiary contracted Canterbury-based Synlait Milk to do the manufacturing. The a2 Milk Company also did some direct spending on marketing in China."

China doesn't cost much to service because they don't have to sign up and quality check any milk supply from China. All that is done in NZ. "A2 Milk China" is in essence just a marketing operation based on NZ milk.

The UK is a different story with milk sourced locally. Perhaps the lack of traction in the UK is becasue A2 don't have enough money to make traction (see below for my comparative costing of the US start up)?

I presume the US expansion will ultimately involve sourcing A2 milk from the USA. That cost will have to be added to the marketing cost. So it stands to reason that launching in the USA will cost more. So lets say A2 want to spend $NZ7m this year to get things started. That translates to around $US5.1m. So how to spend that?

1/ Buy a warehouse, in the outskirts of LA, say $US2m.
2/ Hire four sales reps: Pay 'em $40k cash with a $60k sales target top up payment. Add $30k for signwritten van for them to drive around in. Expenses for each sales rep $40k per year (fuel, out of town sleepovers). Total $US0.63m / year
3/ Hire a branch manager with some branch office support staff $US0.37m /year.
4/ Have some stock on hand to sell $US1m.
5/ Put up $1m for promotional purposes, including advertising.

Add that up and there is just $100k left to start scouting around for some A2 milk suppliers on the ground. I can't see much fat in the budget. Can A2 do the 'Conquer the USA' plan for this price?

SNOOPY

[winner69]

Snoopy - your ATM 'roadmap' was something like AU profits to drive UK growth, UK profits to drive China growth, China growth to drive US growth (something like that)

With that much spend planned for US big money being made somewhere in the world

Yes?

[Snoopy]

Snoopy - your ATM 'roadmap' was something like AU profits to drive UK growth, UK profits to drive China growth, China growth to drive US growth (something like that)

With that much spend planned for US big money being made somewhere in the world

Yes?

Still not sure how to best model the China growth plan? I am now thinking that China is more like a lucrative branch of Australasia as all the product is imported from NZ/Oz.

So I think the ATM growth model is more like:

(Oz/NZ/China) funds (UK) funds (USA)

Of course 'conquering the UK' seems to be mainly happening in the lower right hand corner of England including London. And conquering the USA might initially translate to conquering just California. So I am picking that UK will have to fund growth over the rest of the UK as well as the USA. Or maybe Australian growth covers the expansion into the rest of the UK? That is the money that Australia generates that isn't needed to develop China! The problem is $20m over three years for the USA is big money for ATM, but not big money for the task they want to do. All the future cashflow looks to be on a knife edge. Keeps me on the sidelines not buying. I wonder when the necessary upcoming cash issue will happen?

When ATM was 70c, the institutions balked at paying more than 50c for new shares. So with ATM arround 55c, I think 40c is looking likely. But wouldn't that leave you as a fund manager looking red faced if you paid 50c for the last cash issue? Perhaps that is why those institutions don't want to do it?

Big cash being generated in Australia? I guess so, but 'big' only in relation to ATM shareholder funds, not the road map that ATM have drawn out ahead of them.

SNOOPY

[NT001]

Perhaps the lack of traction in the UK is because A2 don't have enough money to make traction.

Who says there's a lack of traction there?

I presume the US expansion will ultimately involve sourcing A2 milk from the USA.

That's for sure, and not just "ultimately".

So let's say A2 want to spend $NZ7m this year to get things started (in the US). That translates to around $US5.1m. So how to spend that? ...

You're making quite a lot of assumptions about sales strategy, Snoopy. For example, I would think ATM will get deals signed with two or three significant retail chains before they start, rather than hiring sales agents to run around trying to sign up retailers.

[Jasemc]

I think they will play a patient game and just slowly build UK . USA they will push harder than Uk and china who knows what will happen there fresh milk looks promising. I think the history shows slow and steady or perhaps conservative is a better word. As before the future sp price is all on another market gaining traction. If your not patient then this company is not for you.

[Snoopy]

Who says there's a lack of traction there?

It was bull who speculated on a lack of traction in the UK. I wasn't claiming there was a lack of traction. I did note that managment said that nothing like $20m was being spent to get into the UK and China. So I was joining the dots, wondering if the budget to conquer the UK was a little light? I don't know the answer to my question.

That's for sure, and not just "ultimately".

I imagine they would ship in product into teh USA from NZ/Oz initially to get things started? While local suppliers are signed up?

You're making quite a lot of assumptions about sales strategy, Snoopy. For example, I would think ATM will get deals signed with two or three significant retail chains before they start, rather than hiring sales agents to run around trying to sign up retailers.

Ideally, I think you are right. But supermarket chains don't have shelf space to waste on a punt. I suspect signing up one supermarket chain might be harder than driving four vans around the country. I imagine there would have to be quite a bit of point of sale promotion to get things moving. But I don't know. As you said Nt001, I'm speculating.

SNOOPY

[Jasemc]

Looks like Milford has been selling plenty new notice.

[bull....]

Looks like Milford has been selling plenty new notice.

yes looks like milford and nz super sold some and milford has transferred all there nz holdings to nz super be interesting to see what nz super do with all these extra shares in some companies.